Question

Friendlys quick loans, inc., offers you $4.00 for $5.00 or i knock on your door. this means you get $4.00 today and repay $5.00 when you get your paycheck in one week (or else). if you were brave enough to ask, what apr would friendlys say you were paying

Answer 1

Here we are trying to find the interest rate when we know the PV and FV.

Using the FV equation:

FV = PV(1 +r)

$5 = $4(1 +r)

r= 5/4 − 1

= 25% per week

The interest rate is 25% per week.

To find the APR, we multiply this rate by the number of weeks in a year, so:

APR = (52) x 25%

= 1300%