Question

what is the effective rate of return on a $1000 payday loan for 14 days at 533.29% interest

Answer 1

what is the effective rate of return on a $1000 payday loan for 14 days at 533.29% interest

Interest rate = 533.29%

Interest period = 14 days

Calculating the effective rate of return(EAR):-

EAR = (1+r)^n-1

where, r = periodic interest rate = 533.29%/26 = 20.511154%

n = no of times compounding in a year = 26 (bi-weekly or 26 weeks of 14 days in a year)

EAR = (1+0.20511154)^26 - 1

EAR = 127.85225 - 1

EAR = 12685.23%

So, the effective rate of return is 12685.23%

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