Question

A payday loan store charges $50 for a one-month loan of $840. What annual interest rate is this equivalent to? Round your answer to one decimal place if necessary.

Answer 1

Answer: 71.4%

Explanation:

First, we need to find the interest charged on the loan by subtracting the original amount of the loan from the total amount paid back: $840 + $50 = $890

Next, we need to find the interest rate as a percentage of the original loan amount: ($50 / $840) * 100% = 5.95%

Now, we need to annualize this interest rate by multiplying it by 12: 5.95% * 12 = 71.4%

Therefore, the annual interest rate on this payday loan is equivalent to 71.4%.