Question

A man borrows $500 and agrees to repay $750 at the end of 4 years. What is the rate of simple interest charged?

Answer 1

Answer:

The rate of simple interest is 0.125, or 12.5%.

Step-by-step explanation:

If the man must repay $750 after 4 years on a $500 loan, the simple interest would be ($750-$500), or $250.

The simple interest formula is i = p*r*t.  Solving this for the interest rate, r, yields

        i

r = ----------

       p*t

and so, with i = $250, p = $500 and t = 4 yr, we find r as follows:

         $250

r = ----------------- = 0.125

         $500*4

The rate of simple interest is 0.125, or 12.5%.