Question
A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 8 percent interest per
A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 8 percent interest per week.
a.What APR must the store report to its customers? What EAR are customers actually paying?(Round your EARanswer to 2 decimal places. (e.g., 32.16))
b.Now suppose the store makes one-week loans at 8 percent discount interest per week. What's the APR now? The EAR?(Round your answers to 2 decimal places. (e.g., 32.16))
c.The check-cashing store also makes one-month add-on interest loans at 8 percent discount interest per week. Thus if you borrow $100 for one month (four weeks),the interest will be ($100 1.084) 100 = $36.05. Because this is discount interest, your net loan proceeds today will be $63.95. 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?(Round your answers to 2 decimal places. (e.g., 32.16))
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