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23 January, 11:53

Payday loans are very short-term loans that charge very high interest rates. You can borrow $250 today and repay $325 in two weeks. What is the compounded annual rate implied by this 30 percent rate charged for only two weeks? (Hint: Compound the 2-week return 26 times for the annual return.)

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  1. 23 January, 11:56
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    Loan amount = $250

    Duration = 2 weeks (14days)

    Interest = 30%

    Therefore $250 + $75 x 2

    = $400 (A month)

    Going by annual

    $400 * 12

    = $4,800
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