Find the APR (rounded to the nearest percent) for the loan below. Purchased a car for $48,750 at 8.9% add-on interest for 5 years.
A) $2 \%$
B) $9 \%$
C) $45 \%$
D) $18 \%$
E) $15 \%$

Question

Quizplus · Accepted Answer

Using the add-on interest formula: Total Interest = (Principal x Rate x Time) we can find the total interest paid over the life of the loan:
Total Interest = ($48,750 x 0.089 x 5) = $21,787.50

Adding the total interest to the principal, we find the total amount paid over the life of the loan:
Total Amount Paid = $48,750 + $21,787.50 = $70,537.50

To find the APR, we use the APR formula: APR = (Total Interest / Principal) x (365 / Number of Days in Loan Term) x 100%
APR = ($21,787.50 / $48,750) x (365 / (5 x 365)) x 100%
APR = 0.447 x 100% = 44.7%

Rounding to the nearest percent, the answer is D) 18%.

Find the APR (Rounded to the Nearest Percent) for the Loan