Question

Suppose Amisha took a $655 loan from her friend and her friend asked her to pay back $761 when she pays back the loan in a year. What is the rate of interest is her friend charging her on the loan? (Round you answer to two decimal points)

Answer 1

Amisha's friend is charging her an interest rate of approximately 16.18% on the $655 loan when she is asked to pay back $761 after one year.

Step-by-step explanation:

To calculate the rate of interest that Amisha's friend is charging on the loan, we use the formula for simple interest, which is:

Interest = Principal × rate × time

The principal here is $655, the total amount of interest is the difference between what she took and what she has to pay back, which is $761 - $655 = $106, and the time is 1 year.

So, the formula with the known values is:

$106 = $655 × rate × 1

Dividing both sides by $655 gives:

rate = $106 / $655

Calculating this and rounding to two decimal points gives:

rate = 0.16183206107, or approximately 16.18%.

Therefore, the interest rate Amisha's friend is charging on the loan is 16.18%.