Question

Jason took out an 800$ loan from his bank two years ago. He recently paid 860$ Back to the bank. This included the original loan amount and the simple interest charged to him. What was the annual interest rate of Jason’s loan

Answer 1

3.75%

Explanation:

Principal , P= $800

Number of years, t = 2

Total Amount paid back(principal + simple interest) , A = $860

To obtain the interest rate on the loan :

We use the Relation :

A = P(1 + rt)

r = interest rate

860 = 800(1 + 2r)

860 / 800 = 1 + 2r

1.075 = 1 + 2r

1.075 - 1 = 2r

0.075 = 2r

r = 0.075 / 2

r = 0.0375

Hence, interest rate on loan = 0.0375 = (0.0375 * 100%) = 3.75%