Question

Lebron loaned $20,000 to his daughter to help her buy a house. When she sold the house four years later, she paid him the $20,000 along with an interest of $3,000. What was the annual interest rate? Round your answer to two decimal places.

Answer 1

3.75%

Explanation:

If an amount of money, P, called the principal, is borrowed for a period of t years at an annual interest rate r, the amount of interest, I, is given by

I=Prt

where

I=interest

P=principal

r=rate

t=time

The following information is given.

I=$3,000

P=$20,000

t=4 years

Substituting the given information into the simple interest formula and solving for r gives

I=Prt

3,000=(20,000)(r)(4)

3,000=80,000r

Dividing both sides by 80,000 and then converting to a percent, we have

r=3,000/80,000

=0.0375

=3.75%

Thus, Lebron's annual interest rate was 3.75%.

Answer 2

3.75%

Explanation:

Given:

Principle amount of loan = $20,000

Interest paid = $3,000

Time of loan = 4 years

Therefore, the annual interest =
`\frac{\textup{Total interest}}{\textup{Total time}}`

or

the annual interest =
`\frac{\textup{3,000}}{\textup{4}}` = $750

Now,

The annual interest rate = tex]\frac{\textup{Interest amount per year}}{\textup{Priciple amount}}\times100[/tex]

or

The annual interest rate = tex]\frac{\textup{750}}{\textup{20,000}}\times100[/tex]

or

The annual interest rate = 3.75%