Question

What was the simple interest rate that the Carranza's paid when they borrowed 3,000 for home improvements and repaid the loan along with 600 in interest 5 years later?

A) 2%
B) 4%
C) 6%
D) 8%

Answer 1

The simple interest rate that the Carranza's paid on their $3,000 loan over 5 years when they repaid a total of $600 in interest is 4%, which is option B).

Step-by-step explanation:

To find the simple interest rate the Carranza's paid, we use the formula for simple interest: I = PRT, where I is the interest paid, P is the principal amount borrowed, R is the interest rate, and T is the time in years. In this case, the Carranza's paid $600 in interest (I) on a principal amount (P) of $3,000 over 5 years (T).

The formula for simple interest rearranged to solve for R (the interest rate) is:
R = I / (PT)

Substituting the values we have:
R = $600 / ($3,000 × 5)

R = $600 / $15,000

R = 0.04 or 4%

Therefore, the simple interest rate paid by the Carranza's was 4%, which corresponds to option B).