Question

A typical non-bank money transfer (such as MoneyGram) cost $15. If you were to transfer $150 to someone who needs those money in a different city every two weeks, what is the EAR for the transfer? What if you do it once a day?

Answer 1

Nominal cost of transfer in % per transfer (I) = Cost/transfer amount

=15/150

=0.10 or 10%

It is done every 2 weeks. Number of weeks in a year is 52.

So 2 week period in a year (m)= 52/2= 26

EAR formula = ((1+i)^m)-1

=((1+10%)^26)-1

=10.91817654 or 1091.82%

So EAR of transfer is 1091.82%

B.

It is done every once in a day Number of days in a year is 365

So 1 day period in a year (m)= 365

EAR formula = ((1+i)^m)-1

=((1+10%)^365)-1

=1,283,305,580,313,390 or 1,283,305,580,313,39000%

So EAR of transfer is 1,283,305,580,313,39000%