Question

Myrtle needs to borrow $200 and is hoping to get a payday loan with an annual percentage rate (APR) of less than 50%. If a company charges her $30 in fees for the loan, what is the minimum loan term needed that would give Myrtle her desired APR?
a.
90 days
b.
100 days
c.
110 days
d.
120 days

Answer 1

APR = (fee / loan) * (365 / days). Here fee/loan = 30/200 = 0.15. Require 0.15*(365/days) < 0.50 → days > 54.75/0.5 = 109.5.

So the minimum whole-day choice that gives APR < 50% is 110 days.

Answer: c. 110 days.