A local loan shark offers 4 for 5 on payday. What it involves is that you borrow $4 from him and repay $5 on the next payday (one week later). What would the stated annual interest rate be on this loan, with weekly compunding? What is the effective annual interest rate on this loan? Assume 52 weeks in one year, and select the answer closest to your numbers. Stated Interest Rate Effective Interest Rate A) 25% 300% B) 25% 1300% C) 1,300% 10,947,544% D) 260% 1,312%
C
answer is right…but I dont know how to calculate weekly rate using BA II plus…could you help me that…plz
weekly rate: (5-4)/4=25%, that makes a 25%*52=1300%, which is effectively (1+.25)^52-1=10,947,544%
C is the answer weekly interest rate 25% stated annual interest rate = 25%*52 = 1300 Effective rate = [(1.25)^52-1]*100 = 10,947,544% You can eliminate A, B, and D just by looking at the weekly interest rate
thnx guys…for your help…