Question

You are in desperate need of cash and turn to your uncle, who has offered to lend you some money. You decide to borrow $1,340 and agree to pay back $1,540 in two years.

(a) What annual interest rate is your uncle charging you?

Answer 1

To find the annual interest rate, use the formula for simple interest: I = P * r * t. In this case, the annual interest rate is 7.46%.

Step-by-step explanation:

In order to find the annual interest rate, we can use the formula for simple interest:

I = P * r * t

Where:

• I is the total interest
• P is the principal amount (the borrowed amount)
• r is the annual interest rate
• t is the time period (in years)

In this case, we have:

• I = $1,540 - $1,340 = $200
• P = $1,340
• t = 2 years

Plugging these values into the formula, we have:

$200 = $1,340 * r * 2

Simplifying the equation:

r = $200 / ($1,340 * 2)

r = 0.0746 = 7.46%

Therefore, your uncle is charging you an annual interest rate of 7.46%.