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Determining the APR

SECTION. 8-6. pp. 300-303. Determining the APR. Formula. Finance Charge per $100 = $100 × (Finance Charge ÷ Amount Financed). Example 1.

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Determining the APR

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

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

  3. Example 1 Chuck 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?

  4. 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

  5. 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%.

  6. 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?

  7. 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

  8. 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

  9. 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.

  10. 301: 1-25

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