Question

Using the examples above, answer the following questions. Paula Purchaser borrowed $500 at 12 percent for one year. She paid a $25 processing fee. The interest paid will be $. Thus, the total finance charge (the interest plus the processing fee) will be $. Therefore, the APR = total finance charge ÷ amount borrowed =

Answer 1

Let us list down first the given.
We have, $500 at 12 percent interest in a year.
processing fee is $25.
Paula's interest would be: $500 x 12% = $60
Her total finance charge would be: $60 (interest) + $25 (processing fee) = $85.
Therefore, APR would be:
$85 ÷ $500 = .17
To get the percentage, multiply the product with 100. That is: .17 x 100 = 17%

Paula's Annual Percentage Rate (APR) then is 17%.