It is still three weeks until payday and you have run out of cash. You have just received an advertisement from The Money Shop offering a payday loan for 21 days. You can borrow $500 for only $19.99. The fee of $19.99 is payable when you repay the loan. What is the effective annual rate of interest? Answer: 97.7%

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 2P: Cost of Bank Loan Mary Jones recently obtained an equipment loan from a local bank. The loan is for...
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It is still three weeks until payday and you have run out of cash. You have just received an advertisement from The Money Shop offering a payday loan for 21 days. You can borrow $500 for only $19.99. The fee of $19.99 is payable when you repay the loan. What is the effective annual rate of interest?

Answer: 97.7% 

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