Question

leigh took out a payday loan for $400 due in 2 weeks that charged a $50 fee. what is the periodic interest rate of the loan?

25%
325%
650%
12.5%

Answer 1

To find the periodic interest rate for the payday loan, we can use the formula for interest rate:

\[
\text{Interest Rate} = \frac{\text{Interest}}{\text{Principal}} \times 100
\]

In this case:

- **Principal** (amount borrowed) = $400
- **Interest** (fee charged) = $50

Now we can plug in the values:

\[
\text{Interest Rate} = \frac{50}{400} \times 100
\]

Calculating that gives:

\[
\text{Interest Rate} = 0.125 \times 100 = 12.5\%
\]

Since the loan is due in 2 weeks, we can interpret this as the periodic interest rate being for that 2-week period. The periodic interest rate of the loan is **12.5%**.

So the correct answer is **12.5%**.