Question

Suppose that you borrow $2000 from a friend and pay back $3600 in 4 years . What simple interest rate will you pay ?

Answer 1

-- I borrow $2000, and 4 years later, I pay back the whole $2000.

-- I also pay another $1600 for keeping the money for 4 years.

-- $1600 is (1600/2000) = 80% of the $2000 that I borrowed and paid back.

-- To keep the money for 4 years, I paid an extra 80% of it.

-- I paid an extra (80/4) = 20% of the money for each year that I kept it.

-- That's a simple interest rate of 20% .