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The Sharky Finance Ltd. has agreed to provide a loan to Meena on a “four-for-five” monthly basis.
That is, for every $4 Meena borrows today, she has to repay a total of $5 a month later.
What is the true yearly rate of this loan?
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Let A be the loaned amount.
In one month later, Meena re-paid and completed the loan, in full.
So we write the formula for the simple interest amount of one month duration
= ,
where "i" is the annual interest rate, presented as decimal.
We simplify this equation step by step and find " i ", which is the major unknown value
=
=
i = = 3.
ANSWER. The annual interest rate is 3, or 300%.
Solved.