If a person borrows $2500.00 and, after 9 months, pays off the loan in the amount of $2603.13, what per annum rate of interest was charged?
Mathematics · College · Thu Feb 04 2021
Answered on
Given:
Principal amount ( P ) = $2500
Term = 9 months or ¾ year
Interest charge = $2603.13
Determine the interest rate.
Formula for simple interest:
A = P ( 1 + rt)
r =(( A/P) - 1)/t
Solution:
Substitute the given values of A, P and t to the formula to find for r.
r =(( A/P) - 1)/t
r = ((2603.13/2500) - 1)/0.75
r =(0.041252)/(0.75)
r = 0.055
Since we are given a decimal answer, in order to convert it into percentage, we multiply the decimal by 100. Hence, in converting a percentage into decimal, we divide the percentage by 100.
r = (0.055)(100)
r = 5.5%
Final answer:
The interest rate is 5.5%.