Your friend Suzie has just started a new job as a salesperson for a range of financial products offered by Wagon Financial. To her surprise, customers of Wagon Financial ask her very technical questions about the products she sells. Whilst Suzie has worked in sales before, she is not familiar with the products and has asked for your help to better understand them. The first product Suzie represents is a short term loan. Here, customers can borrow small amounts of money, and have some options for the amount of time to repay the loan. Based on Wagon Financials' past experience, the most typical loan amount for customers of this service is $1,250. The table below shows the repayments for the loan term options available. 2 months is $1,600. 3 months is $1,650. 4 months is $1,700. b) We see that each additional month will cost the borrower $50 in additional interest. Calculate the equivalent simple annual interest rate for this $50 per month.

Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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Your friend Suzie has just started a new job as a salesperson for a range of financial products offered by Wagon Financial. To her surprise, customers of Wagon Financial ask her very technical questions about the products she sells. Whilst Suzie has worked in sales before, she is not familiar with the products and has asked for your help to better understand them.

The first product Suzie represents is a short term loan. Here, customers can borrow small amounts of money, and have some options for the amount of time to repay the loan. Based on Wagon Financials' past experience, the most typical loan amount for customers of this service is $1,250. The table below shows the repayments for the loan term options available. 2 months is $1,600. 3 months is $1,650. 4 months is $1,700.

b) We see that each additional month will cost the borrower $50 in additional interest. Calculate the equivalent simple annual interest rate for this $50 per month. 

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  1. You should find that your answer in part c) is larger than your answer in part b). By considering simple and compound interest rates, give an explanation of this difference.

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Follow-up Question

 You should find that your answer in part c) is larger than your answer in part b). By considering simple and compound interest rates, give an explanation of this difference.

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For a loan of $1,250 with interest of $50 charged in the first month, calculate the equivalent compound effective annual interest rate.

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Follow-up Question
  1. For each of the above loan term options, calculate the equivalent simple annual interest rate. 

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