Sam is expecting a $1,400 paycheck in 7 days

Finance Feb 10, 2021

Sam is expecting a $1,400 paycheck in 7 days. A payday lender offers to give him cash now for this check. The lender's fee is 1.75% of the amount of the paycheck, plus a $10 service fee. Find the simple discount rate.

Expert Solution

Computation of Simple Discount Rate:

Discount Rate = Lender's Fee + Service Fee

1400*x*7/365 = 1400*0.0175 + 10

26.85x = 34.50

x = 34.50/26.85

x = 1.285 or 128.50%

So, Simple Discount Rate is 128.50%.

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