Question

A man needed money for college. He borrowed $5,000 at 12% simple interest per year. It he paid $150 interest, what was the duration of the loan

Answer 1

Given:

Principal or the money borrowed - $5,000

Interest Rate = 12% or 0.12 in decimal form

Interest - $150

Find: duration of the loan (t in years)

Solution:

To be able to determine the duration of the loan, let's use the formula of Simple Interest and solve for t.

`I=Prt`

To solve for t, divide both sides of the equation by Pr.

`(I)/(Pr)=(Prt)/(Pr)\Rightarrow(I)/(Pr)=t`

Hence, to solve for the duration, we need to divide the interest by the product of the principal and the interest rate.

`t=(Interest)/(Principal* Rate)=(150)/(5,000*0.12)=(150)/(600)=0.25`

Answer:

The duration of the loan is 0.25 years or 3 months.