Question

Linda Davis agreed to lend money to Alex Luciano at a special interest rate of 7% per year, on the condition that he borrow enough that would pay her $500 in interest over a four-year period. What was the minimum amount Alex could borrow?

Answer 1

It is given that,

`\begin{gathered} Rate(R)\text{ = 7\%} \\ I\text{ = \% 500} \\ T\text{ =3 years} \end{gathered}`

Interest is given by the formula,

`I\text{ = }(PRT)/(100)`

Substituting the value in the formula,

`\begin{gathered} 500\text{ = }(P*7*4)/(100) \\ 50000\text{ = 28P} \\ P\text{ = }(50000)/(28) \\ P\text{ = 1785.71 } \end{gathered}`

Thus the minimum amount to be borrowed is $ 1785.71.