Question

Elmer received a $75,000 loan from a loan shark. The loan required him to make payments of $1000 per week (52 weeks per year) for three years. What annual rate (APR) and effective annual rate (EAR) did the loan charge?

APR 56.48%; EAR 61.10%

APR 56.48%; EAR 75.37%

APR 47.90%; EAR 75.37%

APR does not exist; EAR does not exist

APR 47.90%; EAR 61.10%

Answer 1

Correct option is > APR 56.48% ; EAR 75.37%

Using financial calculator BA II Plus - Input details:	#
FV = Future Value =	$0
PV = Present Value =	$75,000
N = Total number of remaining payment periods = 52 x 3 =	156
PMT = Payment =	-$1,000.00
CPT > I/Y = Rate weekly =	1.0861
Convert Rate in annual and percentage form = Rate weekly / 100 * 52 =	56.48%

Effective Annual Rate = (1+Rate/52)^52-1 = (1+56.48%/52)^52-1 =

75.37%