A payday loan company charges a $90 fee for a $500 payday loan that will be repaid in 16 days. Treating the fee as interest paid

Question

A payday loan company charges a $90 fee for a $500 payday loan that will be repaid in 16 days.

Treating the fee as interest paid, what is the equivalent annual interest rate?

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Maris 5 years 2021-08-30T17:28:42+00:00 1 Answers 17 views 0

Answers ( )

  1. MichaelMet
    0
    2021-08-30T17:29:57+00:00
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    Answer:

    Kindly check explanation

    Step-by-step explanation:

    Given :

    Interest amount paid on loan = $90

    Principal value, amount borrowed = $500

    Period, t = 16 days

    The equivalent annual interest :

    Using the simple interest formula :

    simple interest = principal * rate * time

    Using, days of year = 365

    Plugging in the values into the formula :

    90 = 500 * rate * (16/365)

    90 = 500 * rate * 0.0438356

    90 = 21.917808 * rate

    Rate = 90 / 21.917808

    Rate = 4.10 = 4.10 * 100% = 410%

    If days of year = 360 is used :

    90 = 500 * rate * (16/360)

    Rate = 90 / 22.222

    Rate = 4.05 = 4.105 * 100% = 405%:

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