4. Comparing APRs. Timothy Sprater of Reno, Nevada, has been shopping for a loan to buy a new car. He wants to borrow $18,000 for four or fi ve years. Timothy’s credit union off ers a declining-balance loan at 9.1 percent for 48 months, resulting in a monthly payment of

$448.78. The credit union does not off er fi ve-year auto loans for amounts less than $20,000, however. If Timothy borrowed $18,000, this payment would strain his budget.

A local bank off ered current depositors a fi ve-year loan at a 9.34 percent APR, with a monthly payment of

$376.62. This credit would not be a declining-balance loan. Because Timothy is not a depositor in the bank, he would also be charged a $25 credit check fee and a

$45 application fee. Timothy likes the lower payment but knows that the APR is the true cost of credit, so he decided to confi rm the APRs for both loans before making his decision.

(a) What is the APR for the credit union loan?

(b) Use the n-ratio formula to confi rm the APR on the bank loan as quoted for depositors.

(c) What is the add-on interest rate for the bank loan?

(d) What would be the true APR on the bank loan if Timothy did not open an account to avoid the credit check and application fees?