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disa [49]
3 years ago
6

Sidney took out payday loan for $1200 that charged $85 fee. If the loan matures in 2 weeks, what is approximate effective intere

st rate of the loan?
Mathematics
1 answer:
pashok25 [27]3 years ago
8 0
The amount owed increases by $85 in two weeks. 

<span>If the loan were "rolled over" at that point at the same interest rate, and this were done for a full year, the total amount owed would be </span>
<span>(1285/1200)^26 * $1200 </span>

<span>If we subtract the original principle, $1200, and calculate the rest (the compounding interest) as a percentage of that principle, we get </span>

<span>[(1285/1200)^26 * $1200 - $1200] / $1200 = 493%</span>
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