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In: Finance

1.A check-cashing store is in the business of making personal loans to walk-up customers. The store...

1.A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 7.1 percent interest per week.

a.	What APR must the store report to its customers? What EAR are customers actually paying? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

b.	Now suppose the store makes one-week loans at 7.1 percent discount interest per week. What’s the APR now? The EAR? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

c.

The check-cashing store also makes one-month add-on interest loans at 7.1 percent discount interest per week. Thus if you borrow $60 for one month (four weeks),the interest will be ($60 × 1.071⁴ ) – 60 = $18.94. Because this is discount interest, your net loan proceeds today will be $41.06. You must then repay the store $60 at the end of the month. To help you out, though, the store lets you pay off this $60 in installments of $15 per week. What is the APR of this loan? What is the EAR? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

2.

A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 6.8 percent interest per week.

a.	What APR must the store report to its customers? What EAR are customers actually paying? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

b.	Now suppose the store makes one-week loans at 6.8 percent discount interest per week. What’s the APR now? The EAR? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

c.

The check-cashing store also makes one-month add-on interest loans at 6.8 percent discount interest per week. Thus if you borrow $220 for one month (four weeks),the interest will be ($220 × 1.068⁴ ) – 220 = $66.23. Because this is discount interest, your net loan proceeds today will be $153.77. You must then repay the store $220 at the end of the month. To help you out, though, the store lets you pay off this $220 in installments of $55 per week. What is the APR of this loan? What is the EAR? (Round your answers to 2 decimal places. (e.g., 32.16))


Annual percentage rate	%
Effective annual rate	%

Expert Solution

jeff jeffy answered 1 year ago

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