Payday loans are very short-term loans that charge very high interest rates. You can borrow $200 today and repay $210 in one week. What is the effective annual rate (EAR) implied by this 5 percent rate charged for only one week

effective annual rate = 1164.28%

Explanation:

effective annual rate = (1 + i)ⁿ - 1

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.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

the interest will be $59.71

hope this