annual interest using a 90-day promissory note. James also visited a loan store
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annual interest using a 90-day promissory note. James also visited a loan store for a "pay day" loan to borrowing. The manager told James that he could borrow S600 at 13% for two weeks. If James hemes wants to buy a television that costs $1100. So far, he has saved $500, but he still needs $600 more. A bank will loan him $600 at 13% compare the cost of needed how much it would cost to recognized that 12 weeks is a few days less than 90 days more time to repay the loan, he would be charged 17% on the balance due for each additional week. He wondered pay the loan back in 12 weeks so he could compare the cost of the bank's lending rate. James . Answer parts 1. through 4. 1. Calculate the total cost (principal plus interest) for the 90-day promissory note from the bank Round to the nearest dollar as needed.) 2. How much willJames pay if he gets the money from the l (Round to the nearest dollar as needed.) loan store and pays the balance back in two weeks? 3. How much will it cost if James gets the money from the loan store and pays in back in 12 weeks (nearly 90 days)? (Round to the nearest cent as needed.) 4. James wondered how the loan store can stay in business unless its customers neglect to determine how much they owe before agreeing to borrow. How does a loan store stay in business? O A. Customers are usually glad to find someone who will loan the money with a high interest O B. Customers with good credit tend to borrow from loan stores rather than banks. O C. Customers are usually glad to find someone who will loan the money fast when they might not have the credit to get a loan from another, lower-cost source. O D. Loan stores tend to have lower interest rates than banks, so more people agree to borrow from these businesses. When would a pay day loan be an appropriate choice? O A. It would be appropriate if a customer needed a quick loan to pay for a vacation O B. It would be appropriate if a customer needed a quick loan to pay for a new car O C. Some people would say that it is never appropriate to borrow from these companies because of the high interest rates and fees O D. It is always appropriate because the interest rates are lower than a bank's interest rates.Explanation / Answer
Given: the amount borrowed from the bank = $600, interest rate = 0.13, days in a year= 365, loan is for 90 days.
1) total cost(principal+interest) = $600*(1+0.13*(90/365)) = $619
2) payday loan = 2 weeks
Total cost = $600(1+0.13)= $678
3) payday loan = 12 weeks
Amount owing after 2 weeks = $600(1+0.12)= $678
Note: interest is per week therefore compounded weekly, interest subsequent 10 weeks = 0.17
Total cost = $678(1+0.17)10= $3259
4) customes are usually glad to find someone who will loan the money fast when they might not have the credit to get a loan from another, lower cost source.
Some people would say that it is never appropriate to borrow from these companies because of the high interest rates and fees.
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