You are due a $750 paycheck at the end of the week (Friday), but want to get your hands on the cash on Monday. A payday lender offers to make this deal with you for a fee of 2% of the paycheck. What is the rate you are paying for this service? Assume a 365-day year.

Question

Mathematics

Sosa

15 June, 20:13

You are due a $750 paycheck at the end of the week (Friday), but want to get your hands on the cash on Monday. A payday lender offers to make this deal with you for a fee of 2% of the paycheck. What is the rate you are paying for this service? Assume a 365-day year.

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Answers (2)

Know the Answer?

Anastasia Moyer · Answer 1

Let R = rate, B = base and P = percentage

Use R = P/B

R = 0.02/750

Can you finish?

Bentley · Answer 2

Assuming this is a simple discount note with a face value of $750, the interest that will be deducted is 2%*$750 = $15. Then the proceeds are $750 - 15 = $735, and the effective annual rate is

... 15 / (735 * (4/365)) ≈ 186.2%