1. A financial institution is willing to lend you $2,000. However, you must repay $2,008 at the end of week one. What is the interest rate per week? 2. In question one, what is the annual equivalent (effective) interest rate if the interest is compounded every week?
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introduction
The sum that the lender demands from the borrower in addition to the principal amount is known as the interest rate. Regarding the recipient, a person who deposits currency in a bank or other financial institution also makes extra money due to the time worth of money, which is known as interest earned by the depositor.
On the other hand, the percentage of interest charged on a loan or financial item if compound interest builds up over the course of a year with no payments is known as the effective annual interest rate. It is the annual compound interest depending on the nominal rate that is due in arrears. It is used to compare interest rates for loans with various compounding intervals, like weekly, monthly, half-yearly, or yearly.
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