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Firlakuza [10]
3 years ago
12

Matthew needed money for some unexpected expenses, so he borrowed $2,587.09 from a friend and agreed to repay the loan in three

equal installments of $950 at the end of each year. The agreement is offering an implied interest rate of
Business
1 answer:
Snowcat [4.5K]3 years ago
5 0

Answer:

The agreement is offering an implied interest rate of 10.16%.

Explanation:

Matthew borrowed $2,587.09 from his friend, but he will return $2,850, as 950 x 3 = 2,850.

Therefore, there is an excedent of $262.91, which constitutes an implied interest on the payment of the loan.

As 2,587.09 is the 100% of the loan, we have to know the percent that 262.91 represents in order to know the interest rate. We can know it by using a crossed multiplication:

2,587.09 = 100

262.91 = X

(262.91 x 100) / 2,587.09 = X

26,291 / 2,587.09 = X

10.16 = X

Therefore, the implied interest rate in this loan is of 10.16%.

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