Compound Frequency Payday loans are very short-term loans that charge very high interest rates.You can borrow $600 today and repay $675 in two weeks.What is the compound annual rate implied by this 12.5 percent rate charged for only two weeks?

Question

Quizplus · Accepted Answer

To find the compound annual rate implied by the 12.5% rate charged for only two weeks, we can use the following formula:

(1 + r)^n = (1 + (0.125/52))^26

where r is the annual interest rate, n is the number of compounding periods in a year (in this case, 26 because there are 52 weeks in a year and we are looking at a two-week period), and 0.125/52 is the weekly interest rate implied by the 12.5% rate.

Solving for r, we get:

r = (1 + (0.125/52))^26 - 1
r ≈ 2037.71%

Therefore, the compound annual rate implied by this 12.5% rate charged for only two weeks is approximately 2037.71%. The correct answer is C.

Compound Frequency Payday Loans Are Very Short-Term Loans That Charge