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1 April, 01:45

A person borrows $370 from a payday loan company, paying $26 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore interest rate compounding.

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  1. 1 April, 05:27
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    Rate = 168.65%

    Explanation:

    When loans are collected there is interest that is paid on the principal collected. The interest is usually expressed as a percentage per year.

    The following formula is used to calculate interest rate

    Interest = principal * rate * time

    We are asked to calculate annual percentage

    Rate = interest / (principal * time)

    Interest bis paid every two weeks. That is twice a month, and there are 12 months in a years. That is 2*12 = 24 times.

    Total interest per year = 24 * 26 = $624

    Using the formula

    Rate = 624 / (370*1)

    Rate = 1.6865

    Rate = 168.65%
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