Calculating Monthly Interest Rate from APR

For a loan with an APR of 50.4%, what would be the interest rate charged every 30-day payment period?

a) 2.8%

b) 4.2%

c) 5.0%

d) 6.7%

Final answer:

The monthly interest rate corresponding to an APR of 50.4% is found by dividing the APR by 12. This gives a monthly rate of 4.2%.

Explanation:

The question is regarding the calculation of the monthly interest rate from an annual percentage rate (APR) of 50.4%. The APR is an annualized interest rate that includes fees and costs associated with the loan. To find the monthly interest rate, you would typically divide the APR by 12, the number of months in a year. However, this assumes that the interest is not compounded within the year. If interest is compounded monthly, the calculation would be slightly different and more complex.

In this question, we're seeking the interest rate for a 30-day payment period, which is essentially a monthly interest rate. Thus, we divide the APR by 12 to get the monthly interest rate: 50.4% / 12 = 4.2%.

Since you are asked for the interest charged every 30-day payment period, the answer is b) 4.2%.