Question

A loan is amortized by level payments made on every February 1. The borrower notices that the interest paid in the February 1, 2004 payment was 103.00, and the interest in the February 1, 2005 payment was 98.00. The rate of interest on the loan is i

Answer 1

The total interest on a $5,000 loan at a 6% simple interest rate over three years is $900. To find an interest rate that yields $500 on a $10,000 loan over five years, use the simple interest formula to get 1%.

Step-by-step explanation:

To calculate the total amount of interest from a loan using a simple interest rate, the formula is I = P * r * t, where 'I' is the interest, 'P' is the principal amount, 'r' is the rate of interest per year, and 't' is the time in years.

For example:

1. To find the total interest on a $5,000 loan at 6% simple interest over three years: I = $5,000 * 0.06 * 3 = $900.
2. If you receive $500 in simple interest on a $10,000 loan over five years, the interest rate 'r' can be found by rearranging the formula: r = I / (P * t) = $500 / ($10,000 * 5) = 0.01 or 1%.