Calculating EAR [LO4] A check-cashing store is in the business of making

personal loans to walk-up customers. The store makes only one-week loans at

7 percent interest per week.

a. What APR must the store report to its customers? What EAR are customers

actually paying?

b. 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 * 1.07⁴ ) - 100 = $31.08. Because this

is discount interest, your net loan proceeds today will be $68.92. 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?