Question

Liam borrowed a total of $35,000 to pay for college. he pays his parents 3% interest on the $8,000 he borrowed from them and pays the bank 6.8% on the rest. what average interest rate does he pay on the total $35,000? (round your answer to the nearest tenth of a percent.)

Answer 1

Answer: Liam pays 5.9% in interest

Step-by-step explanation:

Answer 2

Answer: Liam pays an average interest of 5.9% on the total $35,000.

Since the amounts borrowed and the respective interest rates are different, the weighted average will give us a better picture of the average interest paid on the loan.

We calculate weights based on the total amount borrowed.

Borrowing ($) Weights

Parents 3000
`(3000)/(35000)` = 0.228571429

Bank 32000
`(32000)/(35000)` = 0.771428571

Total 35000 1

Once we have the weights, we multiply the interest rates with the respective weights. Then we find the total of the (weights * Interest rate) column to find the weighted average or the average rate Liam pays.

Weights Int Rates Weights * Interest rates

Parents 0.228571429 0.03
`0.228571429*0.03 = 0.006857143`

Bank 0.771428571 0.068
`0.771428571 *0.068 = 0.006857143`

Total 1 0.059314286