Payday loans are very short-term loans that charge very high interest rates. You

Question

Payday loans are very short-term loans that charge very high interest rates. You can borrow $275 today and repay $330 in two weeks. What is the compounded annual rate implied by this 20 percent rate charged for only two weeks? (Do not round intermediate calculations and round your final answer to the nearest whole percent.)

Payday loans are very short-term loans that charge very high interest rates. You can borrow $275 today and repay $330 in two weeks. What is the compounded annual rate implied by this 20 percent rate charged for only two weeks? (Do not round intermediate calculations and round your final answer to the nearest whole percent.)

Explanation / Answer

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20% for two weeks needs to be compounded 26 times to form a year.

(1 + i)^26

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