Question

Bethany purchases a stereo for $750. She pays $100 down and pays for the rest using financing. She is charged a $5
processing fee and 8% annual Interest on the amount financed. What is the APR for financing?
6.93%
7.6%
8.0%
8.77%

Answer 1

Answer:

  8.77%

Step-by-step explanation:

You know the APR will be more than 8% because of the "processing fee." There is only one answer choice above 8%:

  8.77%

_____

Bethany is financing $750 -100 = $650.

If we assume Bethany pays the entire amount in 1 year, then her payments for the first year will include 8% interest and the $5 fee.

  8% × $650 = $52

So, the finance charges as a percentage of the amount financed are ...

  ($52 +5)/$650 × 100% = 8.76923% ≈ 8.77%