Question

Lebrun loaned $20,000 to his daughter to help her buy a house. When she sold the house four years later, she paid him the $20,000 along with an interest of $3000. What was the annual interest rate? Round answer to two decimal places.

Answer 1

The interest rate was 3.75%.

Explanation:

Attention: I am assuming simple interest here since I am not told otherwise.

Knowing Lebrun's interest was a total of $3000 on the $20000 loan, we can safely assume that it was a $750 interest flat fee paid on top of the loan amount dividing the $3000 by the four years it took for them to return the loan.

Dividing the amount of interest, in dollars, by the total amount of the loan and multiplying by 100, you will get the interest rate on the loan:

`(750)/(20000)=(75)/(2000)=(15)/(400)=(3)/(80)\\\\(3)/(80)*100=(3)/(8)*10=(30)/(8)=3(3)/(4) =3.75\%`

Answer 2

3.75%

Explanation:

Total interest (4 years) - $3000

Annual interest (1 year) - $3000 ÷ 4 = $750

Annual interest rate (1 year) -
`(750)/(20 000)` × 100% = 3.75%

Checking:

Interest after 1 year -
`(3.75)/(100)` × $20,000 = $750

Interest after 4 years - $750 × 4 = $3000 (Correct)