An informal lender makes loans to clients without an appointment. The store only makes loans with...

 

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An informal lender makes loans to clients without an appointment. The store only makes loans with a period of one week at an effective interest rate of 7% per week. One year corresponds to 52 weeks. (a) What is the annual nominal rate (APR) that the store offers its customers and the effective annual rate (EAR) that customers are paying? (b) Now suppose that the store makes loans for a week at a discount rate of 7% per week. What is the annual nominal rate (APR) and the effective annual rate (EAR) in this case? (c) The store also makes monthly loans at an effective discount rate of 7% per week. Therefore, if you borrow $100 for one month (four weeks), the amount of interest paid will be $100 - $100 x (1-0.07)^4 = $25.1948. Because the rate is a discount, the net loan today will be $74.8052 and you must pay the store $100 at the end of the month. However, the store offers to pay the $100 in weekly installments of $25. What is the nominal annual rate (APR) in this case? (d) What is the weekly rate with continuous capitalization that is equivalent to the effective annual rate (EAR) of the new loan (the one with weekly installments of $25) of the previous question? An informal lender makes loans to clients without an appointment. The store only makes loans with a period of one week at an effective interest rate of 7% per week. One year corresponds to 52 weeks. (a) What is the annual nominal rate (APR) that the store offers its customers and the effective annual rate (EAR) that customers are paying? (b) Now suppose that the store makes loans for a week at a discount rate of 7% per week. What is the annual nominal rate (APR) and the effective annual rate (EAR) in this case? (c) The store also makes monthly loans at an effective discount rate of 7% per week. Therefore, if you borrow $100 for one month (four weeks), the amount of interest paid will be $100 - $100 x (1-0.07)^4 = $25.1948. Because the rate is a discount, the net loan today will be $74.8052 and you must pay the store $100 at the end of the month. However, the store offers to pay the $100 in weekly installments of $25. What is the nominal annual rate (APR) in this case? (d) What is the weekly rate with continuous capitalization that is equivalent to the effective annual rate (EAR) of the new loan (the one with weekly installments of $25) of the previous question?

Answer rating: 100% (QA)

a The annual nominal rate APR is 364 The effective annual rate EAR is 72... View the full answer