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Calculating ear

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Calculating EAR [LO4]

A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 7 percent interest per week.

a. What APR must the store report to its customers? What EAR are customers actually paying?

b. 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 * 1.074 ) - 100 = $31.08. Because this is discount interest, your net loan proceeds today will be $68.92. 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?

Reference no: EM132376699

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