Calculating EAR A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 9 percent interest per week.
a.What APR must the store report to its customers? What is the EAR that the customers are actually paying?
b.Now suppose the store makes one-week loans at 9 percent discount interest per week (see Question 60). What’s the APR now? The EAR?
c.The check-cashing store also makes one-month add-on interest loans at 9 percent discount interest per week. Thus, if you borrow $100 for one month (four weeks), the interest will be ($100 × 1.094) ‒ 100 = $41.16. Because this is discount interest, your net loan proceeds today will be $58.84. You must then repay the store $100 at the end of the month. To help you out, though, the store lets you pay off this $100 in installments of $25 per week. What is the APR of this loan? What is the EAR?
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