Question

John borrows $2,500 from his dad, who feels it is best to charge him interest. Six months later,

John repays his dad the loan plus interest, a total of $2,588. What was the annual interest rate on
the loan?

Answer 1

0.0704 (or 7.04%)

Explanation:

Principal amount = $2,500

Final Amount = $2,588

time = 6 month = 0.5 years

let annual interest rate by r

Recall for simple interest

Final Amount = Principal Amount [1 + (rate · time) ]

2588 = 2500 [1 + ( r · 0.5) ]

2588 = 2500 (1 + 0.5r )

(1 + 0.5r ) = 2588/2500

1 + 0.5r = 1.0352

0.5r = 1.0352 - 1

0.5r = 0.352

r = 0.352 / 0.5 = 0.0704 (or 7.04%)

Answer 2

6.92

Explanation: