SECTION 8-6 Determining the APR pp. 300-303.

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Presentation transcript:

SECTION 8-6 Determining the APR pp. 300-303

Section Objective Use a table to find: annual percentage rate of a loan

Formula Finance Charge per $100 = $100 × (Finance Charge ÷ Amount Financed)

A Picture Perfect Loan p. 300 Given Chen’s situation, do you think it’s a good idea to take out a loan for a vacation? Should he wait and save up money to afford the trip?

Example 1 Paul Norris obtained an installment loan of $1,500.00 to pay for a computer. The finance charge is $146.25. He agreed to repay the loan in 18 monthly payments. What is the annual percentage rate?

Example 1 Answer: Step 1 Find the finance charge per $100. $100 × (Finance Charge ÷ Amount Financed) $100 × ($146.25 ÷ $1,500.00) $100 × 0.0975 = $9.75

Example 1 Answer: Step 2 Find the APR. (Refer to the Annual Percentage Rate for Monthly Payment Plans table on page 300.) In the row for 18 payments, find the number closest to $9.75. It is $9.77. Read the APR at the top of the column. APR is 12.00%.

Example 2 A 54-inch HDTV is for sale for $1,899.92 cash or $177.83 per month for 12 months. What is the APR?

Example 2 Answer: Step 1 Find the finance charge. Total Payback – Amount Financed (12 × $177.83) – $1,899.92 $2,133.96 – $1,899.92 = $234.04

Example 2 Answer: Step 2 Find the finance charge per $100. $100 × (Finance Charge ÷ Amount Financed) $100.00 × ($234.04 ÷ $1,899.92) $100.00 × 0.12318 = $12.32

Example 2 Answer: Step 3 Find the APR. (Refer to the Annual Percentage Rate for Monthly Payment Plans table on pages 794-795 of your textbook.) In the row of 12 payments, find the number closest to $12.32. It is $12.31. Read the APR at the top of the column. APR is 22.00.

Practice 1 Brenda Richards obtained an installment loan for $2,125. She agreed to repay the loan in 12 monthly payments of $189. What is the APR?

Practice 1 Answer 12.25 percent

Practice 2 Natalie Rubino is planning to borrow $2,800 for a new furnace. Bell Finance will loan her the money for 24 months at a finance charge of $428. TRC Finance will loan her the money for a finance charge of $418. What is the APR on each loan?

Practice 2 Answer Bell Finance: 14 percent TRC Finance: 13.75 percent

END OF SECTION 8-6 Determining the APR