Payday loans are very short-term loans that charge very high interest rates. You can borrow $550 today and repay $675 in two weeks. What is the compounded annual rate implied by this 22.73% rate charged for only two weeks?

Question

Quizplus · Accepted Answer

The interest rate for two weeks is 22.73%. To find the annual rate, we compound this rate over 26 two-week periods in a year: (1 + 0.2273)^26 - 1 = 20,445.61%.

Payday Loans Are Very Short-Term Loans That Charge Very High