Question

George borrowed $6,500 from the bank. 5 years later, George owes the bank $7,800.

What was the percentage rate of simple interest on the loan?

Answer 1

Rate of simple interest = 4%

Explanation:

Formula for simple interest is;

A = P(1 + rt)

Where;

P is principal

r is rate

t is time

Now, we are told that he borrowed $6,500 from the bank and that 5 years later, he owes the bank $7,800.

This means;

P = 6500

t = 5 years

A = 7800

Thus;

7800 = 6500(1 + 5r)

7800/6500 = 1 + 5r

1.2 = 1 + 5r

Subtract 1 from both sides to get;

1.2 - 1 = 1 - 1 + 5r

0.2 = 5r

r = 0.2/5

r = 0.04 or 4%