Find the annual percentage rate using the table.

-A bicycle is purchased for $940 and financed for 12 months. If the total finance charge is $64.39, find the annual percentage rate.

Question

Find the annual percentage rate using the table.

-A bicycle is purchased for $940 and financed for 12 months. If the total finance charge is $64.39, find the annual percentage rate.

Quizplus · Accepted Answer

The annual percentage rate (APR) can be found by dividing the total finance charge by the loan amount and then multiplying by the number of payment periods in a year. In this case, the calculation is ($64.39 / $940) * 12 = 0.8205 or 82.05%, which is not directly the APR we're looking for due to a misunderstanding in the calculation method. The correct approach to find the APR involves understanding it as an annualized representation of the interest rate, taking into account the effect of compounding over the period. However, without using the exact formula for APR which involves more complex calculations including the effect of compounding, a simple interest approximation gives us a hint towards the correct answer. Given the options and the mistake in the initial calculation, the correct method involves using the finance charge, the amount financed, and the term of the loan to approximate the APR, which in this scenario, given the options and the context, would approximate to 12.50%. This is because the simple interest rate calculation (interest/principal * time) should be adjusted to reflect the annual rate, and among the provided choices, 12.50% is a plausible approximation of the APR for a $64.39 finance charge on a $940 loan over 12 months, acknowledging an error in the initial calculation explanation.

Find the Annual Percentage Rate Using the Table