Question

Blake bought a new car. He borrowed $12,500 from the bank. After 4 years he had paid off the loan and paid $1500 in interest. What rate did he borrow at? Include the steps you used to solve the problem and your answer

Answer 1

3%

Explanation:

Blake bought a new car. He borrowed $12,500 from the bank. After 4 years he had paid off the loan and paid $1500 in interest. What rate did he borrow at?

This is a simple interest question

The formula to find the rate is given as:

Equation:

r = (1/t)(A/P - 1)

t = time = 4 years

P = Principal = $12500

I = Simple Interest = $1500

A = Total Amount = Principal + Simple Interest = $12500 + $1500

= $14000

Calculation:

Solving our equation:

r = (1/4)((14000/12500) - 1) = 0.03

r = 0.03

Converting r decimal to R a percentage

R = 0.03 * 100 = 3%/year