Question

A payday loan is made for six weeks, where the amount of interest owed per $100 is $20. If you borrow $500 for six weeks, how much do you owe at the end of six weeks? What is the APR for this transaction?

Answer 1

Answer:

a. $600

b. 173.33%

Step-by-step explanation:

The computation is shown below:

a. For amount owed at the end of six weeks is

= The amount borrowed + interest amount

where,

The amount borrowed is $500

And, the interest is

= $100

So, the amount owed is

= $500 + $100

= $600

b. Now the APR is

Since 20% denotes for the six weeks

So, the annual percentage rate is

= $20\% \times \frac{52}{6}$

= 173.33%