Question

Linda Davis agreed to lend money to Alex Luciano at a special interest rate of 7% per year, on the condition that he borrows enough that he would pay her $300 in interest over a two-year period. What was the minimum amount Alex could borrow?

A. $2,000
B. $2,500
C. $4,000
D. $4,500

Answer 1

To find the minimum amount Alex could borrow at a 7% interest rate over two years to pay $300 in interest, we use the formula for simple interest and solve for the principal. The minimum amount is approximately $2142.86, which is closest to option A: $2,000.

Step-by-step explanation:

To find the minimum amount that Alex could borrow, we need to calculate the principal (P) using the formula for simple interest: I = P * R * T, where I is the interest, R is the interest rate, and T is the time in years.

In this case, Alex would need to pay $300 in interest over a two-year period with an interest rate of 7%. Plugging these values into the formula, we have: $300 = P * 0.07 * 2.

Solving for P, we get P = $300 / (0.07 * 2) = $2142.86 (rounded to the nearest cent). Therefore, the minimum amount Alex could borrow is $2142.86, which is closest to option A: $2,000.