Problem 6-22 Calculating EAR [LO4] Friendly’s Quick Loans, Inc., offers you “$3.

Question

Problem 6-22 Calculating EAR [LO4] Friendly’s Quick Loans, Inc., offers you “$3.30 for $4.30 or I knock on your door.” This means you get $3.30 today and repay $4.30 when you get your paycheck in one week (or else). If you were brave enough to ask, what APR would Friendly’s say you were paying? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) APR % What’s the effective annual return Friendly’s earns on this lending business? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) EAR %

Explanation / Answer

APR

Extra Amount Paid $4.3-$3.3 = $1

than Interest rate is $1/$3.30 = 30.30% Per Week

Than APR is 30.30%*52Weeks = 1575.60%

Friendly Earn Same 1575.60%

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