Personal Finance 1st Edition by Jack R. Kapoor

Exercise 16

Calculating the Annual Percentage Rate. If Dave paid the $500 in 12 equal monthly payments, what was the APR? (Obj. 2)

Step 1 of 2

The annual percentage rate is the annual cost of the credit in the percentage terms. The APR yields a true rate of interest for comparison with other sources of credit.

Following is the formula to calculate APR:

n= Number of payment periods in one year, 12

I= Dollar cost of credit or Finance charge, $55

P= Principal amount borrowed, $500

N=Total number of payments scheduled to pay off the loan, 12