Question

a person borrows $300 from a payday loan company, pays $12 interest for two weeks. this would result in an annual interest rate of

Answer 1

177.25%

Step-by-step explanation:

For the two week period, the interest rate of $12 translates to

=
`(12)/(300)` = 4% per 2 weeks

In a year, there are 52 weeks (i.e 52/2 = 26 (2weeks)).

Thus, to annualize 4% in 2 weeks, we use the formula

`(1 + r)^(n) - 1`

where r is the rate per period (in this case 4%)

n is the number of periods in a year (in this case, 26)

Thus, annual rate =
`(1 + 0.04)^(26) - 1`

=
`(1.04)^(26) - 1`

= 2.7725 - 1

= 1.7725

= 177.25%.