APR Homework
1) Calculate the APR of the following add-on loans
assuming monthly payments (exactly like you did in Friday lab, so pull out your
notes from Friday). Recall that
for the arithmetic series (sum), S=1+2+3+ É +n, we showed on Friday that 
.
a. Purchase a living room set for $3600 with a 7.5%
add-on loan over a 3 year period.
b. Purchase a stereo set for $2760 with a 7.5% add-on
loan over a 3 year period.
2) Did the principal mater in the above calculation? Justify your answer by calculating the
APR for a 7.5% 3 year add-on loan for $P.
Hint: It may be easier to
think of the principal in terms of the monthly payment, d; let P=36d
where d represents the monthly
payments towards the loan balance and then show that the value of d is irrelevant in the calculation of this APR.
3) Determine the general form of the APR of an add-on
loan. In other words, what is the
APR of an add-on loan for $P with N
total payments made n times per
year at a rate of r? I think it would be helpful to let P=Nd, as you did with #2. You should get a compound period rate of 
, so 
. Note that
since 
, the only thing relevant when determining APR is the add-on
rate and the totally number of payments (so the principal and the actual loan
time are irrelevant).
4) A car dealer will sell you the $18,436 car of your
dreams for $3,000 down and 60 easy monthly payments of $384.
a. How much would you end up paying for the car?
b. How much interest would you pay?
c. Assuming this is an add-on loan, what is the add-on
interest rate?
d. Assuming this is an add-on loan, what is the APR? Note that you may use the formula
derived in #3 to answer this: 
.