Question

The check-cashing store also makes one-month add-on interest loans at 7.8 percent discount interest per week. Thus if you borrow $200 for one month (four weeks), the interest will be ($200 × 1.0784) – $200 = $70.09. Because this is discount interest, your net loan proceeds today will be $129.91. You must then repay the store $200 at the end of the month. To help you out, though, the store lets you pay off this $200 in installments of $50 per week. What is the APR of this loan? What is the EAR?

Answer 1

Answer:

APR = 416%

EAR = 5370.60%

Step-by-step explanation:

Given:

Interest rate = 7.8% per week

Now,

In an year there are total 52 weeks

thus,

The APR (Annual percentage rate) = Interest rate × Total weeks in an year

or

APR = 8% × 52

or

APR = 416%

and, EAR ( Effective Annual Rate ) = ( 1 + r )ⁿ - 1

Here,

r is the interest rate per week

n is the total weeks in an year

thus,

EAR ( Effective Annual Rate ) = ( 1 + 8% )⁵² - 1

= ( 1 + 0.08 )⁵² - 1

= 53.7060

or

53.7060 × 100% = 5370.60%