Question

Jim Tree borrowed $1,000 at 10 percent for one year. He paid a $45 processing fee and $100 in interest. He calculated the APR to the nearest tenth. What was the APR?

Answer 1

Given that, Jim Tree borrowed $1,000 at 10 percent for one year. He paid a $45 processing fee and $100 in interest.

Annual Percentage Rate or APR is the annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Jim Tree borrowed = $ 1,000

Interest rate = 10% for one year

Interest for one year =
`(10)/(100) * 1000 = 100`

Processing fee = $45

Total =
`100+45 =145`

APR =
`(145)/(1000) * 100 =14.5`%

Hence, Jim Tree calculated 14.5 % (nearest tenth) APR

Answer 2

APR or Annual Percentage Rate is the true cost of borrowing and it considers the interest and processing fees both, for calculating the cost of the loan.

Jim Tree borrowed $1,000 at 10 percent for one year.

Interest Cost = 10 % of $1000 = $100

Processing Fees = $45

Total Cost = $100 + $45 = $145

Therefore APR = 145/1000

= 14.50%

So, the APR calculated by Jim Tree was 14.5%

Hope this helps ..!!