Question

Kermit took out a 4 year loan for $5,500. He had to pay a total of $1,870 in interest payments. What rate did he pay for his loan?

Answer 1

Answer: 8.5%

Explanation:

This is simple interest.

The formula fie finding simple interest is

I = principal × rate × time

-------------------------------

100

I = PRT/100

From the given values,

P = $5,500, T = 4years, R = ?, I = $1,870

Now we shall change the formula which is fundamental or in situ to suit the rate R.we now have

I = PRT

----

100

PRT = I × 100

R. = I × 100

---------

P × T

= 1,870 × 100

---------------

5,500 × 4

= 1,870 × 25

------------

5,500

= 187000/4

-----------

5500

= 46750/5500

= 8.5%

Therefore, the imtetest rate at which the loan was calculated is

8.5%.