Question

Lexi borrowed $425 from a friend. Six months later, she repaid her friend $450. What annual simple interest rate did she pay?

Answer 1

Lexi borrowed $425 and paid back $450, so the interest paid was $25 (subtract 450 and 425). Then divide the interest over the expression P*t = 425*0.5 = 212.5 to get 25/212.5 = 0.1176 approximately which converts to the annual interest rate of 11.76% (approximately).

If you want to use a formula, then,

i = P*r*t

25 = 425*r*0.5 <---- t = 0.5 to represent half a year

25 = 4250.5*r

25 = 212.5*r

212.5*r = 25

r = 25/212.5

r = 0.1176

r = 11.76%