Question

A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 6.7 percent interest per week.

a. What APR must the store report to its customers? What EAR are customers actually paying? (Round your answers to 2 decimal places. (e.g., 32.16)) Annual percentage rate % Effective annual rate %

b. Now suppose the store makes one-week loans at 6.7 percent discount interest per week. What’s the APR now? The EAR? (Round your answers to 2 decimal places. (e.g., 32.16)) Annual percentage rate % Effective annual rate %

c. The check-cashing store also makes one-month add-on interest loans at 6.7 percent discount interest per week. Thus if you borrow $200 for one month (four weeks),the interest will be ($200 × 1.0674 ) – 200 = $59.23. Because this is discount interest, your net loan proceeds today will be $140.77. 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? (Round your answers to 2 decimal places. (e.g., 32.16)) Annual percentage rate % Effective annual rate %

Answer 1

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