Question

In: Finance

You take a $1,000 post-dated check to a “PayDay” lender. The lender charges you a $10...

You take a $1,000 post-dated check to a “PayDay” lender. The lender charges you a $10 application fee and loans you $975. The check matures five (5) days after you allow the lender to possess it. What is the APR for this loan if you only use this service one time? What is the APR (and APY) if you use this service over and over such that you repeated 73 times in the year?

Solutions

Expert Solution

Answer: The APR (Annual Percentage Rate )  refers to the annual rate of interest charged to borrowers and paid to investors. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.

Formula:

APR =

Interest=Total interest paid over life of the loan

Principal=Loan amount=975

n=Number of days in loan term

Given: Loan+Fees+Int = Amount

975+10+15=1000

Therefore, APR of one-time loan =

=187.17%

If we do for 73 times than APR=

=2.56%

And, APY ( Annual Percentage Yield)=

=

=2.52%

APY(Annual Percentage Yield) is the rate earned on an investment or loan in a year, taking into account the effects of compounding interest.

Difference between APR and APY are

APR is used in case of simple interest while APY in case of compound interest.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

You take a $1,000 post-dated check to a “PayDay” lender. The lender charges you a $10...
You take a $1,000 post-dated check to a “PayDay” lender. The lender charges you a $10 application fee and loans you $975. The check matures five (5) days after you allow the lender to possess it. What is the APR for this loan if you only use this service one time? What is the APR (and APY) if you use this service over and over such that you repeated 73 times in the year?
You would like to borrow $1,000 for 4 weeks and have the following options: A payday...
You would like to borrow $1,000 for 4 weeks and have the following options: A payday lender will charge you $10 per $100 borrowed for every week.   A pawnbroker will accept your signed guitar with a value of $2,000 and will charge you a fee of $30 plus 25% EAR interest on the loan compounded weekly plus an additional fee of 20% of the value of the asset for discharge of the loan. Your sister is willing to loan you...
Take the role of either a lender or a customer and identify yourself. You are negotiating...
Take the role of either a lender or a customer and identify yourself. You are negotiating the terms of a $500,000 loan for a new piece of equipment. What type of loan (amortization style), interest rate, and term would you negotiate? Describe why you believe these terms are important and how you chose them.
Take the role of either a lender or a customer and identify yourself. You are negotiating...
Take the role of either a lender or a customer and identify yourself. You are negotiating the terms of a $500,000 loan for a new piece of equipment. What type of loan (amortization style), interest rate, and term would you negotiate? Describe why you believe these terms are important and how you chose them. Get in early as duplicate answers won’t be accepted.
(2) A 2 year, $6,000 loan at 7% interest with monthly payments. The lender charges you...
(2) A 2 year, $6,000 loan at 7% interest with monthly payments. The lender charges you a $100 fee that can be paid off, interest free, in equal monthly installments over the life of the loan. Thinking of the fee as additional interest, what is the actual interest rate you will pay?
1. You get a $15,000 car loan for 4 years at 6.75% interest. The lender charges...
1. You get a $15,000 car loan for 4 years at 6.75% interest. The lender charges $250 for an origination fee (which is added to your loan amount). What is your APR? 2. You buy furniture for $2,500. You pay $300 down and the retailer finances the remainder with 36 monthly payments of $80. Calculate your APR.
Do you need cash fast? Your local PayDay Cash Advance Store willcash your personal check...
Do you need cash fast? Your local PayDay Cash Advance Store will cash your personal check today and hold it until your next payday.” So, in effect, you get a short-term loan for a fee. Suppose that “your local PayDay Cash Advance Store” charges $15.00 per cash advance, the average cash advance is $500, and the average loan term is two weeks. What is the EAR on the average loan?34.87 Percent76.87 Percent115.66 Percent143.54 PercentNone of the Above
A bank charges $10 per month plus the following check fees for a commercial checking account:...
A bank charges $10 per month plus the following check fees for a commercial checking account: $.10 each for less than 20 checks $.08 each for 20 - 39 checks $.06 each for 40 - 59 checks $.04 each for 60 or more checks Write a program that prompts the user for the number of checks written each month. Then compute and display the bank’s total service fees for the month. Make sure the output displays with a $ and...
You are a lender. You know you want to actually gain a rate of 10% on...
You are a lender. You know you want to actually gain a rate of 10% on funds that you lend to your customers. What APR should you quote to borrowers that will make monthly payments on the loan? 0.797% 10% 9.57% 12%
CICo. allows you to write a post-dated cheque for 120 INR dated 15 days in the future for which they give you 100 INR today.
CICo. allows you to write a post-dated cheque for 120 INR dated 15 days in the future for which they give you 100 INR today. If you are unable to pay off the loan, the interest is compounded every 15 days in a year. If you are unable to pay off the amount with interest for a year, how much is the amount due from your side to CICo.? What is the APR and EAR of this arrangement?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT