Question

Sam borrowed money from a credit union for 4 years and was charged simple interest at an annual rate of 5%. The total interest that he paid was $40. How

much money did he borrow?
If necessary, refer to the list of financial formulas.
X

Answer 1

$200

Explanation:

We use simple interest formula

A = P(1+RT)

= P(1+0.05×4)

A = 1.2P

Interest = Amount - principal

40 = 1.2p -p

40 = 0.2p

P = $200

Amount = 1.2 X 200

= $240

The amount borrowed was the principal which was = $200