In: Finance
If a loan shark offers to give you $5,000 today in return for $8,000 in three weeks, what is the implied weekly compound interest rate?
Future Value:
Future Value is Value of current asset at future date grown at given int rate or growth rate.
FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods
Particulars | Amount |
Present Value | $ 5,000.00 |
Future Value | $ 8,000.00 |
Periods | 3 |
Future Value = Cash Flow * ( 1 + r )^n
$ 8000 = $ 5000 ( 1 + r ) ^ 3
( 1 + r ) ^ 3 = $8000 / $5000
( 1 + r ) ^ 3 = 1.6
( 1 + r ) = 1.6 ^ ( 1 / 3 )
( 1 + r ) = 1.1696
r = 1.1696 - 1
r = 0.1696 i.e 16.96 %
Weekly Int rate is 16.96%
Int Rate for 3 Weeks = 16.96% * 3
= 50.88%