Marvin borrows $2,500 from the Shady Dealings Loan Company. He is told the interest rate is merely 2%/month and his payment is computed as follows:

Loan period
= 30 month
Interest = 30(0.02)($2,500)
= $1,500
Credit investigation and insurance
= $50
Total amount owned = $2,500 + $1,500 + $50
= $4,050
Size of payment = $4,050/30
=$135/month
What effective interest rate is paid for the transaction?

To find the effective interest rate paid for the transaction, we need to calculate the interest paid over the loan period and then find the equivalent annual interest rate.

Step 1: Find the total interest paid over the loan period.
The interest paid over the loan period can be calculated by subtracting the principal amount (initial borrowed amount) from the total amount owed:
Total interest paid = Total amount owed - Principal amount
Total interest paid = $4,050 - $2,500
Total interest paid = $1,550

Step 2: Calculate the equivalent annual interest rate.
The equivalent annual interest rate can be found by converting the monthly interest rate to an annual interest rate. Since the interest rate is given on a monthly basis, we need to multiply it by 12 to get the annual interest rate:
Annual interest rate = Monthly interest rate * 12
Annual interest rate = 0.02 * 12
Annual interest rate = 0.24 or 24%

Therefore, the effective interest rate paid for the transaction is 24%.