Final answer:
The annual interest rate is 5%.
Step-by-step explanation:
To calculate the annual interest rate, we need to find the rate that, when applied to the initial loan amount of £400, will result in the final amount of £460 after 3 years.
The formula to calculate simple interest is:
Final Amount = Principal + (Principal x Rate x Time)
Plugging in the given values:
£460 = £400 + (£400 x Rate x 3)
Now, solve for the rate:
£460 - £400 = £400 x Rate x 3
£60 = £1200 x Rate
Rate = £60 / £1200 = 0.05
Convert the rate to a percentage:
Rate as a percentage = 0.05 x 100% = 5%