Question

A loan shark lends you $50 at 3% compound interest per week (this is a weekly, not an annual rate.) Round your answers to the nearest dollars
A. How much will you owe after 2 years?
B. in "street" language, the profit on such a loan is known as the "vigorish" or the "vig." Find the sharks vig.

Answer 1

Answer:

(a) Amount owed after 2 years is $ 1081.54

(b) The shark's vig is $ 1031.54

Step-by-step explanation:

(a)

The amount on a principal, P, after a period, T, at a compound interest, R, is given by

$A = P\left(1+\dfrac{R}{100}\right)^T$

From the question,

P = $ 50

R = 3% per week

T = number of weeks in 2 years = 2 × 52 = 104 (Assuming 52 weeks for each year)

$A = \ \,50\left(1+\dfrac{3}{100}\right)^{104} = \ \,50(1.03)^{104} = \ \,1081.54$

(b)

The shark's vig = $ 1081.54 - $ 50 = $ 1031.54