Question

Mr. Johnson borrowed $8000 for 4 years to make home improvements. If he paid a total of$2,320 in simple interest, at what interest rate did he borrow the money?

Answer 1

The formula for simple interest rate is expressed below:

$I=P\cdot r\cdot t$

Where I is the amount of interest paid, P is the initial amount invested, r is the rate of interest and t is the elapsed time. Since we know the amount of interest paid and the initial amount invested we can calculate the rate of interest.

$\begin{gathered} 2320=8000\cdot r\cdot4 \\ 2320=32000\cdot r \\ 32000\cdot r=2320 \\ r=\frac{2320}{32000}=0.0725 \end{gathered}$

The rate was 7.25 %.