Question

Friendly's quick loans, inc., offers you "ten for twelve or i knock on your door." this means you get $10.00 today and repay $12.00 when you get your paycheck in one week (or else). if you were brave enough to ask, what apr would friendly's say you were paying?

Answer 1

Friendly's would say you were paying 1042.86% APR.

Step-by-step explanation:

Annual percentage rate (APR) can be described as the yearly interest rate that is paid by a borrower to a lender which is expressed in percentage term without taking compounding into consideration.

Annual Percentage Rate (APR) can be determined using the following formula:

APR = {[(Fees + Interest amount) / Principal / n] * 365} * 100 ……………… (1)

Where;

APR = ?

Fees = 0

Interest amount = Amount to repay - Amount to borrow = $12.00 - $10.00 = $2.00

Principal = Amount to borrow = $10.00

n = Number of days in the loan term = One week = 7 days

Substituting the values into equation (1), we have:

APR = {[(0 + 2) / 10 / 7] * 365} * 100

APR = 1042.86%

Therefore, friendly's would say you were paying 1042.86% APR.