Your friend is short on cash and thinking about using one of those payday loan places. You told him it's a bad idea and you are explaining why. The loan is for $850 and it will be paid back 11 days later. He will have to pay them back $1400. Assume the company compounds every 11 days. 2a. What is the effective interest rate per year? 2b. What would you owe if you kept the money for 1 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
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Your friend is short on cash and thinking about using one of those payday loan places. You told him it's a bad idea and you are
explaining why.
The loan is for $850 and it will be paid back 11 days later. He will have to pay them back $1400. Assume the company compounds
every 11 days.
2a. What is the effective interest rate per year?
2b. What would you owe if you kept the money for 1 year?
Transcribed Image Text:Your friend is short on cash and thinking about using one of those payday loan places. You told him it's a bad idea and you are explaining why. The loan is for $850 and it will be paid back 11 days later. He will have to pay them back $1400. Assume the company compounds every 11 days. 2a. What is the effective interest rate per year? 2b. What would you owe if you kept the money for 1 year?
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