Question

Your friend tells you that if you let him keep 50 of your Pokemon cards for a month, he will give you 1 card extra

when he returns your cards.

What is the annual rate of interest he is willing to pay for the borrowed cards?

Note: Even though he only keeps your cards for a month, we can still calculate an annual interest rate.

%

Answer 1

0.2682 or 26.82%

Explanation:

The monthly interest rate (r) that your friend is willing to pay is:

`r=(1)/(50)=0.02`

The following expression converts a monthly interest rate (r) into an annual interest rate (i):

`r=\sqrt[12]{1+i}-1`

For r = 0.02:

`0.02=\sqrt[12]{1+i}-1 \\1.02^(12)-1=i\\i=0.2682`

Your friend is willing to pay an annual rate of 0.2682 or 26.82%.