Im assuming i am suposed to use A=P(1+rt)
A be 1606
would t be 98/360 ?
and would P be 34 ?
I understand how to use A=P(1+rt) and also the compound interest formula, but I have been stuck on this problem for 2 days and dont know how to put it in the formula. Im pretty sure you have to use the A=P(1+rt) formula, but i do not know what are the variables from this problem
The problem is:
If you paid $34 to a loan company for the use of $1606 for 98 days, what annual rate of interest did they charge? (Assuming a 360 day year.)
How do i do this problem?
P is the principal (amount of the loan) which is, in this case, 1606.
A is the principal plus all interest, or the amount you have to pay back (in all). in this case, A = 1606 + 34 = 1640.
so we have: 1640 = 1606(1 + rt) ---> rt = 1640/1606 - 1 = 34/1606 = 17/803
we want to expess t in years, since we are seeking an annual percentage rate for r.
assuming a 360-day year, t = 98/360 = 49/180, so r = (17/803)(180/49) = 3060/39347 = 0.0778 (approximately),
so r is 7.78% apr.
it could happen....honestly, i don't know why that assumption is there. even "apr" is bound to be slightly off, as a "year" is not a uniform length of time in days (should we use 365? 508/73? the actual number of days expressed as seconds*86,400?). in any case, it seems to be widely used in financial circles...see 360-day calendar - Wikipedia, the free encyclopedia