Question

If you borrow $25,000 from a local finance company and you are required to pay $4,424.50 per year for 10 years, what is the annual interest rate on the loan?

Answer 1

To find the annual interest rate on the loan, calculate the interest paid each year as a percentage of the loan amount. Set up the equation 44,245 = x/100 x 25,000 and solve for x. The annual interest rate on the loan is 17.79%.

Step-by-step explanation:

To find the annual interest rate on the loan, we need to calculate the interest paid each year as a percentage of the loan amount. The total interest paid over 10 years is $4,424.50 x 10 = $44,245. We can set up the equation:

44,245 = x/100 x 25,000 in which the value of x can be the variable that stands for the figure that we do not know

Solving for x, we find that the annual interest rate on the loan is 17.79%.

Answer 2

Use this formula:

A= P(1+rt),

A is the final investment amount (4424.50x10)

P is the principal amount (25,000)

r is the rate of interest (annual)

t is the time period (10)

If A= P(1+rt),

then (1+rt) = A/P.

(1+r(10)=( 44,245)/25,000

10r=1.7698-1

r=.7698/10

r=.07698 or 7.698%