Question

A woman obtained a 2-year loan to cover the costs of a vacation. She was surprised to find that the simple annual interest rate of 8.5% meant that she would be paying $425 in interest. What was the original amount of her loan?

Answer 1

The amount she borrowed is 2500.

Explanation:

To find the answer, let’s start with the information we have.

First, in the formula, interest equals principal times rate times time. The interest, I, is four hundred twenty-five dollars, the principal, P, is what we are trying to find, the rate is r, and the time, t, is two years.

Next, the rate, r, is eight point five percent. Change the percent to a decimal by moving the decimal point two places to the left.

Then, multiply point zero eight five and two to get point one seven.

Now, divide both sides of the equation by point one seven. The result is the principal, two thousand five hundred dollars.

The original amount of the loan was 2500.

Answer 2

$2500

Explanation:

The amount of simple interest is computed using the formula ...

I = Prt

where P is the principal amount of the loan, r is the annual rate, and t is the number of years. Filling in the given information, we have ...

425 = P·0.085·2

P = 425/0.17 = 2500 . . . . divide by the coefficient of P

The original amount of the loan was $2500.