Question

Joshua borrowed $500 on January 1, 2017, and paid $25 in interest. The bank charged him a service charge of $15. He paid it all back at once on December 31, 2017. What was the APR?

Answer 1

Answer: 8%

Explanation:

The Annual Percentage Rate or APR for short is calculated by dividing the finance cost by the total amount borrowed in the following manner,

APR = Finance Charge / Amount borrowed.

To calculate the Finance charge we add the interest and the service charge.

Finance charge = 25 + 15

= $40

Back to the APR formula we will have,

APR = Finance Charge / Amount borrowed

APR = 40/500

= 0.08

APR is 8%.