Anyone know how to solve this finance/statistics problem? - compound interest online formula for recurring
Many companies in tax-anticipation loan for the preparation of their customers refund (RAL). For a fee, the company is a customer a refund when filing his declaration. The loan is repaid when the IRS sends your refund directly to the company. Thus, the rate of the interest rate for a RAL loan. The following table shows the rate of RAL from a company offered online tax preparation.
Amount ...................... RAL RAL Fee
................................ 0-300 2 ...
301-600 ............................ 39
601-900 ............................ 54
901-1200 .......................... 84
1201-1500 ........................ 144
Find the annual interest rate for each of the following loans:
(A) 200 $ RAL paid in 10 days
(B) $ 1,300RAL will pay in 15 days
I solve the compound interest formula to a 43% and achieved, but it's not fair, and I do not know where I went wrong.
Someone knows how solve this problem?
Monday, February 22, 2010
Compound Interest Online Formula For Recurring Anyone Know How To Solve This Finance/statistics Problem?
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Interest on these loans is really outrageous! (Or, if you wear the technique.)
ReplyDeleteSee, for example http://www.bankrate.com/brm/itax/news/20 ...
(or one of a series of articles, if you look at the "refund anticipation loan")
I am not sure whether they use to compound interest.
It does not depend too much, these things are fraud, no matter how you find out.
Here is a simple way to see.
$ 2 to $ 200 is 1%.
(Is it really $ 2? A is estimated at 20, if so, you can change the calculation)
10/365 = 10 days per year
so that only simple interest 365/10 = 36.5 * 1% = 36.5% per year.
(Who can easily reach over 43% compound interest.)
In fact, it's worse than this because the deduction of advance payments
it is 2 / 198 * 365/10 = 0.36869 = 36.87%.
For 15 days in 1300, is even worse (but no worse than the previous one was $ 20)
The fare is 144
144 / 1300 * 365 / 15 = 2.69538462, or 269.5%
Or, if the premium is deducted in advance:
144 / (1300 - 144) * 365 / 15 = 3.03114187, or 303.11%
Yes, yes ... two or three hundred percent simple interest!
Stay away from these things ... worse than the lottery!
(At least with a lottery ticket, there is a chance, though may be small in order to win!)