# Compound Frequency - Payday loans are very short-term loans that charge very high interest rates....

## Question:

Compound Frequency - Payday loans are very short-term loans that charge very high interest rates. You can borrow $1,500 today and repay$1,770 in two weeks. What is the compound annual rate implied by this 18 percent rate charged for only two weeks?

## Effective Annual Rate:

The effective annual rate of return on a loan can be found by using this expression: Annual rate = (1 + Periodic rate)Periods - 1. In general, the higher the number of compounding periods, the higher the effective annual rate.

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