Chapter 8: Review and Assessment

• Business Math
• Secondary Education

List two factors you need in order to determine APR.

Objectives

• Determine the annual percentage rate of a loan using a table
• Calculate the APR using a formula. 
• Evaluate the calculation using a formula and a table.

Example 1

Uma Hartmann obtained a $900.00 installment loan to pay for brochures to advertise her new business. The finance charge is $13.14, and she must repay the loan in 6 months. What is the annual percentage rate?

Answer

Step 1: Find the fi nance charge per $100.

Finance Charge per $100 = $100 ×Finance Charge/Amount Financed

= $100 ×$13.14/$900

$1.46 = $100 × 0.0146

The finance charge per $100 is $1.46.

Step 2: Find the APR. (Refer to the Annual Percentage Rate for Monthly Payment Plans table on pages A8–A9.)

In the row for 6 payments, find the number closest to $1.46. It is $1.46. Read the APR at the top of the column. The APR is 5.00%.
 

For Problems 1–4, refer to the Annual Percentage Rate for Monthly Payment Plans table on pages A8–A9.

Answer Here

Answer

Example 1

Liam Elliott obtained a $1,700 installment loan to pay for an invisible fence for his dog. The finance charge is $154.25. He agreed to repay the loan in 18 monthly payments. Use the APR formula to determine the annual percentage rate. Round the

answer to the nearest hundredth of a percent.

Solution

APR = mf(95n+9 )/(12n)(n+1)(4a+f )

 APR = (12 × $154.25)[(95 × 18) + 9]/(12 × 18)(18 + 1)[(4 × $1,700) + $154.25]

APR = $3,181,869/$28,540,242

APR = 0.111487 = 11.15%

Tynetta Mafundo obtained an installment loan of $3,600.00 to buy a sculpture from the local art gallery. The finance charge is $126.18. She agreed to repay the loan in 18 monthly payments. Use the APR formula to determine the annual percentage rate.
Round the answer to the nearest hundredth of a percent.

Answer

APR = (12 × $126.18)[(95 × 18) + 9]/(12 × 18)(18 + 1)[(4 × $3,600) + $126.18]

 APR = $2,602,841.04/$59,615,442.72

 APR = 0.04366051 = 4.37%

Calculate the APR using a table for the above question.

What is the difference in APR for the calculation by formula and using a table?

Write the main points of the lesson.