Question

A repair shop took a short-term 1-year loan to purchase new equipment.

The original loan amount was $10,000, but at the end of the year the shop had to repay a total of $11,950. What was the simple interest rate on the loan?

Answer 1

To find the simple interest rate on the loan, you can use the formula for simple interest:

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Where:
- I is the interest paid
- P is the principal amount (the initial loan amount)
- R is the interest rate (in decimal form)
- T is the time (in years)

In this case, you have:
- Principal (P) = $10,000
- Total amount repaid (Principal + Interest) = $11,950
- Time (T) = 1 year

You want to find the interest rate (R). Rearrange the formula to solve for R:

R = I / (P * T)

First, calculate the interest paid (I) by subtracting the principal from the total amount repaid:

I = $11,950 - $10,000 = $1,950

Now, plug in the values into the formula:

R = $1,950 / ($10,000 * 1)

R = $1,950 / $10,000

R = 0.195

To express the interest rate as a percentage, multiply by 100:

R = 0.195 * 100

R = 19.5%

So, the simple interest rate on the loan was 19.5%.