Answer to March 3, 2003 Problem

The Las Vegas Interest Problem

In the summer of 2002, I noticed the following sign in Las Vegas:

Borrow up to $500 cash.
If you borrow $100.00 you pay only $1.07 interest per day!

What is the annual interest rate that these lenders were charging? (assume 365 days in a year).

 

Solution to Problem:

The answer is 390.55%.

Charging $1.07 for 365 days yields $390.55 in interest for the $100 you borrowed. This means you are paying 390.55% interest per year. That is nearly 4 times the amount borrowed! And they had the nerve to use the word only in their ad!


Correctly solved by:

1. Walt Arrison Philadelphia, Pennsylvania
2. Rick Jones Kennett Square, Pennsylvania
3. John Funk Ventura, California
4. Bill Funk San Antonio, Texas
5. James Alarie University of Michigan -- Flint
Flint, Michigan
6. John Pleacher Leitchfield, Kentucky
7. Daniel Wilberger Winchester, Virginia
8. Jeffrey Gaither Winchester, Virginia
9. Matt Stillwagon Winchester, Virginia
10. David and Judy Dixon Bennettsville, South Carolina
11. Ashley Neumann Winchester, Virginia