Question

On January 30, 2014, your parents lent you $400. On January 30, 2015, you repaid the loan by writing your parents a check for $432. What was the annual interest rate your parents charged you for that loan?

Answer 1

Answer:

The annual interest rate charged would be 8%

Explanation:

The annual interest rate which is charged by the parents for the loan is computed as:

Interest rate = (Amount repaid for loan - Lent amount by parents) /Lent amount by parents × 100

where

Lent amount by parents is $400

Amount repaid for loan is $432

Putting the values above:

Interest rate = ($432 - $400) / $400 × 100

Interest rate = $32/ $400 × 100

Interest rate = 0.08 × 100

Interest rate = 8%