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Expert – APR APR stands for Annual Percentage Rate. This is used for car-loans, savings accounts, credit-cards and home mortgages. Look at the example below. Ex: 2010: $12,000.00 with 2.39% APR 2011: $12,286.80 1) Explain APR as you would explain it to someone who doesn’t understand percent. Think 5th grader. 2) What calculations were performed? Write an equation showing how to get from the principle to the current balance. A year is a long time to wait, and banks just aren’t that patient. They want payments on a monthly basis, so they need to calculate interest monthly. Ex: 9.99% APR means 0.825% monthly interest 3) Write an equation or explanation for how you can find the monthly interest if you know the APR. Weekly interest. Pay-day loan places expect the loan to be re-paid in 2 weeks. Ex: 44.99% APR means 0.865% weekly interest 4) Write an equation or explanation for how you can find the weekly interest if you know the APR. Daily interest. Impatient? Can’t wait until next week? Ex: 135% APR means 0.3699% daily interest 5) Write an equation or explanation for how you can find the daily interest if you know the APR. Continue on the back! Effective APR vs. Nominal APR. It turns out that the APR quoted on your credit card is not quite what it seems. The banks calculate your interest daily, and use the new balance (with the interest) to calculate the interest for the next day. 6) Write a recursive formula (U0 = # ; Un = Un-1 *#) to calculate the balance of an account daily, based on a 9.99% APR. Start with a principle of $100. 7) Now using your recursive formula, calculate the balance of the account after one month (30 days), and compare the % that the account increased to the monthly interest that you calculated in #3. 8) How will the actual interest accrued over an entire year compare to the APR listed on the credit card statement?
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