Differentiate the terms APR and EAR

Reference no: EM131795977

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? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Now suppose the store makes one-week loans at 6.7 percent discount interest per week. What's the APR now? The EAR? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Reference no: EM131795977

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