Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in ten weeks. What is the compound annual rate implied by this 10 percent rate charged for only ten weeks? 5.20 percent 64.15 percent 59.94 percent 10.41 percent
Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in ten weeks. What is the compound annual rate implied by this 10 percent rate charged for only ten weeks? 5.20 percent 64.15 percent 59.94 percent 10.41 percent
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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Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in ten weeks. What is the compound annual rate implied by this 10 percent rate charged for only ten weeks?
5.20 percent
64.15 percent
59.94 percent
10.41 percent
Expert Solution
Introduction and Formula
Solution:-
Annual effective compound rate means the rate charged on per annum basis after effect of all compoundings in a year.
So, annual effective interest rate = [(1+ Periodic interest rate)n - 1] x 100
where, n = number of periods in year
Periodic interest rate = Annual interest rate / number of periods in year
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