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A payday loan is structured to obscure the true interest rate you are paying. For​ example,...

A payday loan is structured to obscure the true interest rate you are paying. For​ example, in​ Washington, you pay a $27 ​"fee" for a​ $185 two-week payday loan​ (when you repay the​ loan, you pay $212 ​). What is the effective annual interest rate for this​ loan?  ​(Assume 26​ bi-weekly periods per​ year.) The effective annual interest rate is_____%.

Solutions

Expert Solution

Let effective annual interest rate be r
Hence,
185*(1+r)^(1/26)=212
=>r=(212/185)^26-1
=>r=3353.56350%

jeff jeffy answered 2 years ago
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