Question

Your uncle lends you $2,000 less $100 (interest at 5 percent), and you receive $1,900. Use the APR formula to find the true annual percentage rate. Assume you repay the entire loan in one year

Answer 1

APR =5.263%

Step-by-step explanation:

Computation of the true annual percentage rate

Using the APR formula to find the true annual percentage rate

APR=(2 × n × I) / [P × (N + 1)]

Hence;

APR= (2 × 1 × $100) / [$1,900 × (1 + 1)]

APR=$200/($1,900×2)

APR=$200/$3,800

APR= 0.05263 ×100

APR =5.263%

Therefore the true annual percentage rate using the APR formula will be 5.263%