Question

Cheatem Loans will lend you $500 with the understanding that you will repay them $600 in one month. What is the annual percentage rate for this loan?

Answer 1

In one month, you'll pay $100 in interest. Therefore, after 12 months you would pay $1200 in interest.

Let's find what percentage this represents relative to the loan:

This way,

$\begin{gathered} x=\frac{1200\cdot100}{500} \\ \Rightarrow x=240 \end{gathered}$

The annual interest rate is 240%