Based on a $500 loan amount, rank the following companies from the lowest to highest annual percentage rate (APR).
| Company | Fees Charged | Term of Loan |
| ------- | ------------ | ------------ |
| A | $60 | 20 days |
| B | $50 | 12 days |
| C | $75 | 15 days |
| D | $100 | 8 days |
a. A, B, C, D
b. B, A, C, D
c. D, B, C, A
d. D, C, B, A
Please select the best answer from the choices provided
Answer (2)
Calculate the APR for each company using the formula: A PR = ( L o an A m o u n t F ee ) × ( T er m o f L o an 365 ) × 100 .
Calculate A P R A = 219.0 , A P R B = 304.17 , A P R C = 365.0 , and A P R D = 912.5 .
Rank the companies based on their APRs from lowest to highest: A, B, C, D.
The final ranking of companies from lowest to highest APR is: A , B , C , D .
Explanation
Understanding the Problem We are given a problem where we need to rank four companies (A, B, C, and D) based on their Annual Percentage Rate (APR) for a loan of $500. We are provided with the fees charged and the term of the loan for each company. Our goal is to calculate the APR for each company and then rank them from the lowest to the highest APR.
APR Calculation Formula The formula to calculate the APR is: A PR = ( L o an A m o u n t F ee ) × ( T er m o f L o an 365 ) × 100 We will apply this formula to each company.
Calculating APR for Company A For Company A, the fee is 60 an d t h e t er mi s 20 d a ys . T h ere f ore , A P R A = ( 500 60 ) × ( 20 365 ) × 100 = 219.0 $
Calculating APR for Company B For Company B, the fee is 50 an d t h e t er mi s 12 d a ys . T h ere f ore , A P R B = ( 500 50 ) × ( 12 365 ) × 100 = 304.17 $
Calculating APR for Company C For Company C, the fee is 75 an d t h e t er mi s 15 d a ys . T h ere f ore , A P R C = ( 500 75 ) × ( 15 365 ) × 100 = 365.0 $
Calculating APR for Company D For Company D, the fee is 100 an d t h e t er mi s 8 d a ys . T h ere f ore , A P R D = ( 500 100 ) × ( 8 365 ) × 100 = 912.5 $
Ranking the Companies Now we have the APR for each company:
Company A: 219.0
Company B: 304.17
Company C: 365.0
Company D: 912.5 Ranking them from lowest to highest APR, we get: A, B, C, D.
Final Answer The companies ranked from the lowest to the highest APR are A, B, C, and D.
Examples
Understanding APR is crucial in real-life financial decisions. For instance, when choosing between different credit cards or loan offers, the APR helps you compare the actual cost of borrowing. A lower APR means you'll pay less in interest over the life of the loan, saving you money. Knowing how to calculate and compare APRs empowers you to make informed decisions and avoid costly debt.
The companies ranked from the lowest to highest APR are A, B, C, and D. Company A has the lowest APR of 219.0, while Company D has the highest at 912.5.
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