Question

Helen borrowed $8,000 from her grandfather to pay for college. Five years later, she paid him back the $8,000 and an interest of $1,200 . What was the annual interest rate?

Answer 1

3%.

Explanation:

We have been given that Helen borrowed $8,000 from her grandfather to pay for college. Five years later, she paid him back the $8,000 and an interest of $1,200.

We will use following formula to find the annual interest rate.

`I=PrT`, where,

`I= \text{Amount of interest}`,

`P= \text{Principal amount}`,

`r= \text{Annual interest rate in decimal form}`,

`T= \text{Time in years}`.

Upon substituting our given values in above formula we will get,

`1,200=8,000*r*5`

`1,200=40,000*r`

Upon dividing both sides of our equation by 40,000 we will get,

`(1,200)/(40,000)=(40,000*r)/(40,000)`

`(12)/(400)=r`

`(3)/(100)=r`

`0.03=r`

Since our interest rate is in decimal form,let us convert it in percentage by multiplying 0.03 by 100.

`r=0.03* 100=3\%`

Therefore, the annual interest rate was 3%.