Question

David borrowed $30,000 to start a business. Four years later, he repaid the $30,000 along with an interest of $1,260. What was the annual interest rate? Round to two decimal places

Answer 1

Answer:

1.05%.

Step-by-step explanation:

If an amount of money, P, called the principal, is borrowed for a period of t years at an annual interest rate r, the amount of interest, I, is given by

I=PrtwhereIPrt=interest=principal=rate=time

The following information is given.  

IPt=$1,260=$30,000=4 years

Substituting the given information into the simple interest formula and solving for r gives

I1,2601,260=Prt=(30,000)(r)(4)=120,000r

Dividing both sides by 120,000 and then converting to a percent, we have

r=1,260120,000=0.0105=1.05%

Thus, David's annual interest rate was 1.05%.

Answer 2

Answer:

About 1.03%

Step-by-step explanation:

We can use the formula:

$FV=P(1+r)^t$

Where FV is the future value (30,000 + 1260 = 31,260)

P is the present amount (30,000)

r is the rate of interest, yearly (we need to find this, r)

t is the time in years (t = 4)

Putting in the numbers, we solve for r:

$FV=P(1+r)^t\\31260=30000(1+r)^4\\1.042=(1+r)^4\\1+r=1.0103\\r=.0103$

The annual rate of interest was 1.03%