Compound Frequency Payday loans are very short-term loans that charge very high interest rates.You can borrow $200 today and repay $250 in two weeks.What is the compound annual rate implied by this 25 percent rate charged for only two weeks?

Question

Quizplus · Accepted Answer

To calculate the compound annual rate, we can use the formula:

(1 + r)^52 = 1 + (0.25/200)

where r is the compound annual rate and 52 represents the number of weeks in a year.

Solving for r, we get:

r = [(1 + (0.25/200))^(1/52) - 1] x 100%

r = 32,987.22%

Therefore, the compound annual rate implied by the 25% rate charged for only two weeks is 32,987.22%. Option B is the correct choice.

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