SOLUTION: 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 mo

Algebra ->  Finance -> SOLUTION: 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 mo      Log On


   

Question 1200964: 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?
Answer by ikleyn(52786) About Me  (Show Source):
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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  %285%2F4%29%2AA  and completed the loan, in full.


So we write the formula for the simple interest amount of one month duration

    %285%2F4%29A = A%2A%281%2B%28i%2F12%29%29,


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

    5%2F4 = 1+%2B+%28i%2F12%29%29

    1%2F4 = i%2F12

    i = 12%2F4 = 3.


ANSWER.  The annual interest rate is  3,  or  300%.

Solved.