9. Calculating the APR when the add-on method is used Add-on interest rates and APRs are not equivalent. This is because the add-on calculation (using the equation I = PRT, where I is the add-on interest, P is the amount borrowed, R is the interest rate, and T is the time of the loan in years) assumes that the original debt is owed for the entire period of the loan. However, in reality the debt goes down as the loan is repaid. The following equation shows the n-ratio method for estimating the APR for an add-on loan: APR = Y (95P+9)P 12PYP+ 1)(4D2 where: APR = Annual Percentage Rate Y = Number of Payments in One Year F = Finance Charge in Dollars (Dollar Cost of Credit) D = Debt (Amount Borrowed or Proceeds) P = Total Number of Scheduled Payments Consider the following example: Assume that Ana Cole from Salt Lake City, Utah borrows $1,500 for two years at 9% add-on interest to be repaid in 24 monthly installments. Step 1: Calculate the amount of add-on interest (in dollars) for Ana's loan. (Hint: Use the equation I = PRT, where I is the interest in dollars, P is the amount borrowed, R is the interest rate, and T is the time of the loan in years.) The add-on interest for Ana's loan is $ Step 2: Identify the values of the following variables in preparation for calculating the APR using the n-ratio method. Y = Number of Payments in One Year = F = Finance Charge in Dollars (Add-on Interest from Step 1) = $ D = Debt (Amount Borrowed) = $ P = Total Number of Scheduled Payments = Step 3: Use the equation APR = Y (95P+9)P to estimate the APR for Ana's loan. 12PXP + 1)(4D+P) Round your answer to the nearest 0.1%. The APR for Ana's loan is estimated to be %