Question

What is the Annual Percentage Rate for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days?

a. 120% APR.
b. 304% APR.
c. 312% APR.
d. 438% APR.

Answer 1

The Annual Percentage Rate (APR) for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days is approximately 438% APR.

Step-by-step explanation:

The Annual Percentage Rate (APR) for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days can be calculated as follows:

1. Find the total amount repaid by adding the principal amount ($100) and the fee ($12): $100 + $12 = $112.
2. Calculate the interest by subtracting the principal amount from the total amount repaid: $112 - $100 = $12.
3. Convert the interest to an annual rate by multiplying it by the number of loan periods in a year:

$(12/100) × (365/10) = $43.8.

Finally, calculate the APR by dividing the interest by the principal amount and multiplying the result by 100:

$(43.8/$100) × 100 ≈ 43.8% APR.

Therefore, the correct answer is d. 438% APR.