Answer:
effective annual rate = 1164.28%
Explanation:
effective annual rate = (1 + i)ⁿ - 1
- i = weekly interest rate = 5%
- n = number of weeks in a year = 52 weeks
effective annual rate = (1 + 0.05)⁵² - 1 = 12.6428 - 1 = 11.6428 = 1164.28%
Sadly this question is probably taken from a real world case. Payday loans are infamous for their extremely high interest rates. They can help someone cover some immediate expense, but their customers are digging their financial graves. That is why they are forbidden in many states.
