Question

Katie has a loan balance of $5,000 .To pay off the $5,000 in three years it will cost Katie $675 in interest. Chris has a loan balance of $2,500. To pay off the $2,500 in five years it will cost Chris $625 in interest. Who is paying the highest interest rate, and what is the difference?

Answer 1

Katie has a loan balance of ----------------$5,000
interest-------------------------------------------$675
years----------------------------------------------3

if
$5,000---------------------100%
$675-------------------------X%     X=675*100/5000
X=13.5% total interest 3 years
one year----------13.5/3=4.5% per year

Chris has a loan balance of ----------------$2,500
interest-------------------------------------------$625
years----------------------------------------------5

if
$2,500---------------------100%
$625-------------------------X%     X=625*100/2500
X=25% total interest 5 years
one year----------25/5= 5% per year

a) Chris is  paying the highest interest rate ----------5% per year
b) The difference is (5%-4.5%)= 0.5%