## Question

###### ONY I TUWU TU TU 000 L alu off? 23. Calculating EAR (L04) Bergheim's Quick Loans...

ONY I TUWU TU TU 000 L alu off? 23. Calculating EAR (L04) Bergheim's Quick Loans Inc. offers you "three for fi knock on your door." This means you get $3 today and repay $4 when you get your cheque in one week (or else). What's the effective annual return Bergheim's earns on this lending business? If you were brave enough to ask, what is the weekly compounded APR Bergheim's would say you were paying? 24 Valnim

## Answers

We use the formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.4=3*(1+r/100)

(1+r/100)=(4/3)

r=1.3333-1

=33.33%(Approx).

APR=33.33%*52 weeks

=1733.33%(Approx).

EAR=[(1+APR/m)^m]-1

where m=compounding periods=[(1+0.3333)^52]-1

=313,916,515.70%(Approx).

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