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 8 percent interest per week.

  

c.

The check-cashing store also makes one-month add-on interest loans at 8 percent discount interest per week. Thus if you borrow $100 for one month (four weeks),the interest will be ($100 × 1.084 ) − 100 = $36.05. Because this is discount interest, your net loan proceeds today will be $63.95. You must then repay the store $100 at the end of the month. To help you out, though, the store lets you pay off this $100 in installments of $25 per week. What is the APR of this loan? What is the EAR? (Round your answers to 2 decimal places. (e.g., 32.16))

Answer 1

Following shows the APR and EAR calculation

The working is shown below