Question

At a rate of 4%, you paid $144.00 in interest over a two-year period. What was the original amount of your loan?

A. $2,000.00
B. $2,550.00
C. $2,250.00
D. $1,800.00

Answer 1

Simple interest - not compounded you got $ 1,800
Formula

I= P x r x t
where:
I= Interest
P is the principal amount, $1800.00.
r is the interest rate, 4% per year, or in decimal form, 4/100=0.04.
t is the time involved, 2 year(s) time periods.

So, t is 2 year time periods.
To find the simple interest, we multiply 1800 × 0.04 × 2 to get that: $144.00

Answer 2

The formula that will be used here is: I = PRT,
Where I = interest = $144.00
P = principal = ?
R = rate = 4% = 0.04
T = time = 2 years
I = PRT
P = I / RT
P = 144 / [0.04 * 2] = 144 / 0.08
P = 1800.
Therefore, the principal is $1,800.00.
The correct answer is D.