Question

TJ borrowed $1200 in student loans. He will make 45 equal monthly payments of $54.50 to pay off the loan. What is the simple interest rate for the loan?

Answer 1

Answer:

The rate of the loan is 2.32% monthly or 27.84% annually.

Step-by-step explanation:

Let's recall the formula of the Simple interest:

A = P * (1 + rt)  

Where:  

A = Total Loan (money received + interest)

P = Initial loan

r = Rate of Interest

t = Time Period involved in months

A = 54.50 * 45 = $ 2,452.50

Replacing with the real values, we have:

A = P * (1 + rt)  

2,452.50 = 1,200 * (1 + 45r)

2,452.50 = 1,200 + 54,000r

54,000r = 2,452.50 - 1,200

54,000r = 1,252.50

r = 1,252.50/54,000

r = 0.0232 = 2.32%

The rate of the loan is 2.32% monthly or 27.84% annually.