| Message |
Author |
 Posted: Fri May 09, 2008 9:26 am |
|
|
I was wondering if you would be able to help me with this question?
A check-cashing store is in the business of making personal loans to walk -up customers. The stores makes only one-week loan at 8% interest per week.
a. The store must report an APR of ________% to its customers. The customers are actually paying an EAR of _______%.
Thanks So much
|
|
newyorklu001
Joined: 09 May 2008
Posts: 1
Debtcc Points: 13
|
|
|
|
Shazzers
Moderator
Joined: 05 Dec 2007
Posts: 2614
Debtcc Points: 18916
|
|
|
| Posted: Fri May 09, 2008 8:15 pm |
|
|
The APR they have to disclose is actually the same as the effective rate. Since the resulting yield is a time-price differential, you need to know the loan amount and points (document fee) in order to calculate it.
I think you may be confusing EAR with the nominal rate. To calculate the nominal rate, you would multiply by 52 (since there's 52 weeks in a year). 8*52 = 416%
Document fees kick up the effective rate. If they don't charge a document fee, nominal and effective will be the same.
|
|
DebtCruncher
Moderator
Joined: 07 Nov 2006
Posts: 1332
Debtcc Points: 15942
|
|
|
