Question

Your local pawn shop loans money at an annual rate of 23 percent and compounds interest weekly. What is the actual rate being charged on these loans? A. 26.56 percent B. 25.16 percent C. 26.49 percent D. 25.80 percent

Answer 1

Answer:

D. 25.80 percent

Explanation:

The formula to compute the effective annual rate of the loan is shown below:

= (1 +  annual interest rate ÷ periods)^ number of period - 1

= (1 + 23% ÷ 52)^52 - 1

= (1 + 00442)^52 - 1

= 1.00442^52 - 1

= 1.2579618615  - 1

= 25.80%

There are 52 weeks in a year and we considered the same in the above calculation