Find the APR (true annual interest rate), to the nearest half percent, for the following loan. Finance Charge Number of Monthly Payments $175 Amount Financed $3100 18
Find the APR (true annual interest rate), to the nearest half percent, for the following loan. Finance Charge Number of Monthly Payments $175 Amount Financed $3100 18
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Understanding APR Calculation**
To calculate the APR (true annual interest rate) for a given loan, we need to identify three key components:
1. **Amount Financed**: This is the initial amount borrowed for the loan. In this case, it's $3,100.
2. **Finance Charge**: This is the total cost of borrowing, including interest and fees. Here, it's $175.
3. **Number of Monthly Payments**: This is the total number of payments to be made over the duration of the loan. In this scenario, it's 18 monthly payments.
**Calculating APR:**
- It involves determining the rate such that when applied to the amount financed, it results in the finance charge over the given number of payments.
- Usually, APR tables or financial calculators are used to simplify this process.
**Instruction:**
To determine the APR, you can click on the icon provided to view an annual percentage rate table, a useful tool for making this calculation.
**Task:**
Find the APR to the nearest half percent. Once determined, enter it in the provided section.
**Note:**
APR is expressed as a percentage and reflects the true cost of borrowing money annually, including fees and interest, making it a crucial figure for comparing loan options.
Expert Solution
Step 1: Introduction
The Annual Percentage Rate (APR) represents the yearly cost of borrowing money through loans or credit cards. It encompasses not just the interest rate but also considers all additional fees and expenses linked to the loan or credit card.
Data given
Amount financed = 3100
Finance charge = 175
Number of monthly payment = 18
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