Question

Lily took out a 5-year loan from the bank for $31,000 to purchase a new car. At the end of the loan, she had paid a total of $37,975. Find the interest rate on the loan.

Answer 1

To find the interest rate on Lily's car loan, subtract the original loan amount from the total paid to find the total interest, and then use the simple interest formula. The interest rate is found to be approximately 4.5% per year.

Step-by-step explanation:

Finding the Interest Rate on Lily's Car Loan

To determine the interest rate on Lily's car loan, we first identify the total amount of interest paid over the life of the loan. Lily took out a loan for $31,000 and by the end of the 5-year term, she paid a total of $37,975. Therefore, the total interest paid is $37,975 - $31,000 = $6,975.

The next step involves using the formula for simple interest:

I = PRT

Where:

• I is the total interest,
• P is the principal amount (the original loan amount),
• R is the interest rate per period,
• T is the number of periods.

We rearrange the formula to solve for the interest rate R:

R = I / (PT)

Substituting the values we have:

R = $6,975 / ($31,000 * 5)

After calculating, we find that the interest rate R is approximately 0.045 or 4.5% per year.

Answer 2

=24.5%

Step-by-step explanation:

1. Simple interest = (principal×rate×time)÷100. *brackets first*
2. transpose the formula to make rate the subject: rate= (100×simple interest) ÷ (principal×time)
3. plug in values: rate = (100×37975) ÷ (31000×5)
4. the result is 24.5%