A offers $1,000 loans for up to 15 days for a flat fee of 5% of the principal due at the time of lending.B also offers $1000 loans. It charges $40 administrative fee at the time of lending, and interest rate of 56% per year. To make it easier for the customers B divides interest and principal into 52 equal weekly installments. Thus on a $1,000 loan a customer pays (1,000 (1.56)/52) = $30.00 every week. What effective annual interest rate each lender is charging. Which lender would you borrow from, if you need money for one year?
A offers $1,000 loans for up to 15 days for a flat fee of 5% of the principal due at the time of lending.B also offers $1000 loans. It charges $40 administrative fee at the time of lending, and interest rate of 56% per year. To make it easier for the customers B divides interest and principal into 52 equal weekly installments. Thus on a $1,000 loan a customer pays (1,000 (1.56)/52) = $30.00 every week. What effective annual interest rate each lender is charging. Which lender would you borrow from, if you need money for one year?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A offers $1,000 loans for up to 15 days for a flat fee of 5% of
the
principal due at the time of lending.B also offers $1000
loans. It charges $40 administrative fee at the time of
lending, and interest rate of 56% per year. To make it easier
for the customers B divides interest and principal into 52
equal weekly installments. Thus on a $1,000 loan a customer
pays (1,000 (1.56)/52) = $30.00 every week.
What effective annual interest rate each lender is charging.
Which lender would you borrow from, if you need money for
one year?
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