Question

Barbara got a flat tire and does not have a spare. She needs her car for work, so she goes to a business that offers payday loans in order to get the money to buy a new tire. She borrows $75 and plans to pay it back when she gets paid in 8 days. Barbara is charged a fee of $15 and the term on her loan is 8 days. Approximately what is the annual percentage rate on her loan? a. 228% b. 487% c. 913% d. 973% Please select the best answer from the choices provided A B C D

Answer 1

Answer:

c

Explanation:

Answer 2

Answer:

Ans. c) The annual percentage rate of the loan is approximately 913%

Explanation:

Hi, well, she borrowed $75 and paid $90 ($75 + $15 fee) in 8 days. So we need to use the following formula to check what 8 days percentage rate was applied to this loan.

$r=\frac{FinalValue}{InitialValue} -1$

That is:

$r=\frac{90}{75} -1=0.20$

So she pays 20% for 8 days, to know the annual rate (approx.) we need to do the following operation.

$r(Annual)=\frac{0.20}{8Days} *\frac{365Days}{1Year} =\frac{9.13}{1Year}$

That is 913% per year.

Best of luck.