Business College

Friendlys quick loans, inc., offers you $4.00 for $5.00 or i knock on your door. this means you get $4.00 today and repay $5.00 when you get your paycheck in one week (or else). if you were brave enough to ask, what apr would friendlys say you were paying

Answers

Answer 1
Here we are trying to find the interest rate when we know the PV and FV.

Using the FV equation:

FV = PV(1 +r)

$5 = $4(1 +r)

r= 5/4 − 1

= 25% per week

The interest rate is 25% per week.

To find the APR, we multiply this rate by the number of weeks in a year, so:

APR = (52) x 25%

= 1300%
Answer 2

The APR for borrowing $4.00 and repaying $5.00 after one week is 1300%, calculated by converting the 25% weekly interest rate to an annual rate by multiplying it by the number of weeks in a year.

To compute the Annual Percentage Rate (APR) for the scenario presented where you receive $4.00 today and repay $5.00 in one week, you need to consider the interest rate over the course of a year. First, calculate the weekly interest rate by taking the interest amount of $1.00 (which is $5.00 - $4.00) and dividing it by the principal amount of $4.00, which gives you 0.25 or 25%. As there are 52 weeks in a year, multiplying the weekly rate by 52 gives the APR:

0.25 x 52 = 13

So, the APR charged by Friendly's Quick Loans, Inc., in this case, would be 1300%.

This is an extremely high rate and is indicative of practices typically associated with payday loans, which are known for their exorbitant interest rates.

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