Question

In: Finance

The bank charges $15 for every $100 borrowed and must be repaid in three weeks. If...

The bank charges $15 for every $100 borrowed and must be repaid in three weeks. If you cannot repay this loan, it will roll over to a new payday loan with another charge.

There are 52 weeks in each year. You plan to borrow $400.

APR =

EAR =

Solutions

Expert Solution

Interest Rate for 3 weeks = Charges/Borrowed = 15/100 = 0.15

APR = Interest Rate for 3 weeks*52/3 = 0.15*52/3 = 2.6 = 260%

EAR = [(1+Interest Rate for 3 weeks)^(52/3)]-1 = [(1+0.15)^17.3333]-1 = 11.27446-1 = 10.27446 = 1027.446%


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