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Brut [27]
3 years ago
6

You are in desperate need for cash to pay your water bill so you head to the check-cashing store down the street. They offer to

lend you $200 now but you must leave a postdated check of $212 to be cashed in 7 days. What is the effective annual rate of this short-term loan?
Business
1 answer:
rodikova [14]3 years ago
6 0

Answer:

1969.6%

Explanation:

The computation of the effective annual rate is given below;

Given that

It is been charged $12 for $200 loan for 7 days

So for 7 days,

the nominal interest rate is is

= 12 ÷ 200 × 100

= 6%

Now

(1+r) = (1+0.06)^{52}

(1+r) = 20.696

r = 19.696

= 1969.6%

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