Question

Dave borrowed $760 on January 1, 2019, and paid it all back at once on December 31, 2019. The bank charged him a $10.00 service charge and interest was $45.10.

Required:
a. What was the APR?
b. Dave borrowed $1,280 on January 1, 2006, and paid it all back at once on December 31, 2006. The bank charged him a $6.50 service charge and interest was $44.70. What was the APR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. Dave borrowed $500 for one year and paid $50 in interest. The bank charged him a $5 service charge. What is the finance charge on this loan?
d. Dave borrowed $500 on January 1, 2006. The bank charged him a $5 service charge and interest was $50. If Dave paid the $500 in 12 equal monthly payments, what was the APR?

Answer 1

1. APR=7.25

2.APR=7.38%

3.Finance charge = $55

4.APR=11%

Step-by-step explanation:

a. Calculation for What was the APR

First step is to calculate the Annual finance charge using this formula

Annual finance charge =Interest+Other costs

Let plug in the formula

Annual finance charge= $45.10 + 10

Annual finance charge= $55.10

Now let calculate the APR Using this formula

APR=Annual finance charge / Principal borrowed

Let plug in the formula

APR= $55.10/$760

APR= 0.0725*100

APR=7.25%

b. Calculation for What was the APR

Using this formula

APR=(2 × n × I) / [P × (N + 1)]

Let plug in the formula

APR= (2 × 12 × 51.2) / [$1,280 × (12 + 1)]

APR=$1,228.2 / $16,640

APR=0.0738*100

APR=7.38%

Note that $44.70+$500 will give us 51.2

c .Calculation for What is the finance charge on this loan using this formula

Finance charge = Interest + Other costs

Let plug in the formula

Finance charge = $50 + 5

Finance charge = $55

d. Calculation for what was the APR using this formula

First step is to calculate Annual finance charge

Using this formula

Annual finance charge =Interest+Other costs

Let plug in the formula

Annual finance charge= $50 + 5

Annual finance charge= $55

Now let calculate the APR using this formula

APR=Annual finance charge / Principal borrowed

Let plug in the formula

APR= $55 / $500

APR= 0.11*100

APR=11%