Question

A payday loan store charges $40 for a one-month loan of $840. What annual interest rate is this equivalent to?

Answer 1

Given:

Monthly charge = $40

Loan amount = $840

Let's find the annual interest rate.

To find the annual interest rate, apply the Simple interest formula.

`r=\frac{100\ast interest}{\text{Principal}* time}`

Where:

r is the rate

Interest is the store charge = $40

Principal is the loan amount = $840

Here, the time is 1 month.

Let's convert thr time to years, where 1 year = 12 months.

1 month = 1/12 year

Thus, we have:

`\begin{gathered} r=(100*40)/(840*(1)/(12)) \\ \\ r=(100*40)/(840*0.83) \\ \\ r=(4000)/(70) \\ \\ r=\text{ 57.14\%} \end{gathered}`

Therefore, the annual interest rate is 57.14%

ANSWER:

57.14%