Payday loan. You borrow $500 to buy gifts for your children. In two weeks, you need...

Payday loan.

You borrow $500 to buy gifts for your children. In two weeks, you need to pay $650.

What would be your interest rate over that two week period, and what would your Annual Percentage Rate be for the year?

How much profit would the PayDay Lender make in a year if they made that same loan with the same $500 every two weeks assuming 100% collections and money out on that original $500?

If the lender had $100,000 in Capital for the entire year, and assuming 100% collections and fully loaned out, what would be the gross revenue for the lender?

Expert Solution

Interest rate over 2 week=650/500-1=30%

APR=30%*52/2=780%

Profit=150*26=3900

Gross revenue=650*26=16900

jeff jeffy answered 2 years ago

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