Question

Samantha received a loan from the bank for $4,500. She plans on payinyoff the loan in 4 years. At the end of 4 years, Samantha will have paid$900 in interest. What is the simple interest rate on the bank loan?

Answer 1

The simple interest rate formular is;

I = A - P

A= I + P

A = P ( 1 + rt )

A is the amount after t years

P is the initial amount = $4,500

r is the rate in percent = ?

t is the time in years = 4

A = $4,500 + $900 = $5,400

Therefore to obtain the rate (r)

5400 = 4500 (1 + r x 4 )

1 + 4r = 5400/4500

1 + 4r = 1.2

4r = 1.2 - 1

4r = 0.2

r = 0.2/4 = 0.05

In percentage;

r = 0.05 x 100 = 5%

Thus, the simple interest rate is 5%