Question

Friendly’s Quick Loans, Inc., offers you “three for four or I knock on your door.” This means you get $3 today and repay $4 when you get your paycheck in one week (or else). |

a. |
If you were brave enough to ask, what APR would Friendly’s say you were paying? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |

b. |
What’s the effective annual return Friendly’s earns on this lending business? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |

Step 1

Part (a) Let R be the APR. Then weekly rate = R / 52

(Assumption: There are 52 weeks in a year)

PV = What you get today = $ 3

FV = What you have to pay...

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