Question

Sara borrowed $5,000 from her father at a simple interest rate of 12.5% per year. Over a two - year period, she made equal monthly payments to pay back the loan plus the interest on the loan. About how much was her monthly payment

Answer 1

The formula for simple interest is:

A = P(1+rt)

Where P = amount borrowed

r = interest rate

t = time of loan

A = 5000(1 + 0.125*2)

A =6,250

The total amount she paid back was $6,250

For her monthly payment divide total paid back by 24 months ( 2 years = 24 months)

6250 / 24 = 260.42

Her monthly payment was $260.42

Answer 2

260.42

Explanation:

I =PRT

Where p is the principal

r is the interest rate = 12.5 % = .125

t = time = 2 years

I = 5000* .125*2 =1250

The total cost is the loan plus the interest

A = 5000+1250

= 6250

Divide by the 24 months

6250/24 =260.42