Question

Kaylee obtains a loan with simple interest to buy a car that costs $8,500. If Kaylee pays $1,020 in interest during the four year term of the loan, what was the rate of simple interest

Answer 1

Answer: 3 percent

Step-by-step explanation:

Answer 2

The simple interest formula is:

A = P · (1 + r · t)
where:
A = total amount
P = principal
r = rate
t = time 

Let's solve for r:
A = P + P · r · t
P · r · t = A - P

r = (A - P) / (P · t)

The quantity A - P is defined as the Interest, therefore:
r = I / (P · t)
  = 1020 / (8500 · 4)
  = 0.03

Therefore the rate was 3%.