question archive The pawn shop adds 2 percent to loan balances for every two weeks a loan is outstanding
The pawn shop adds 2 percent to loan balances for every two weeks a loan is outstanding
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The pawn shop adds 2 percent to loan balances for every two weeks a loan is outstanding. What is the effective annual rate they are charging?
Select one: a. 73.08% b. 51.21% c. 67.34% d. 79.97% e. 83.43%
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Answer: Option C: 67.34%
Calculation:
| Adding 2% every two weeks amouts to compounding at 2% every two weeks. | |
| As there are 52 weeks or 26 'two weeks' | |
| the effective rate will be 1.02^26-1 = | 67.34% |
