Question
NeedyAbusers Limited (NAL) offers $2000 loans for up to 30 days for a flat fee of 10% of the principal due at the time of
NeedyAbusers Limited (NAL) offers $2000 loans for up to 30 days for a flat fee of 10% of the principal due at the time of lending.
LoanSharkers Inc. (LSI) also offers $2000 loans. It charges $100 administrative fee at the time of lending, and interest rate of 60% per year. To make it easier for the customers LSI divides interest and principal into 52 equal weekly installments. Thus on a $2,000 loan a customer pays (2,000(1.60)/52) = $61.54 every week.
What effective annual interest rate is each lender charging? Which lender would you borrow from, if you need money for one year?
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Financial Markets and Institutions
Authors: Jeff Madura
12th edition
9781337515535, 1337099740, 1337515531, 978-1337099745
