Question

Lisa took out a loan for 5 months and was charged simple interest at an annual rate of 4.8%.

Answer 1

Answer:

Lisa borrowed $8,500

Step-by-step explanation:

Simple Interest

Occurs when the interest is calculated on the original principal of a loan only.

Unlike compound interest where the interest earned in the compounding periods is added to the old principal, simple interest only considers the principal to calculate the interest.

The interest earned is calculated as follows:

I=Prt

Where:

I = Interest

P = initial principal balance

r = interest rate

t = time

Lisa took out a loan for t=5 months and was charged simple interest at an annual rate of r=4.8% = 0.048. She paid interest for I=$170.

We need to convert the time to years (there are 12 months per year):

t = 5 /12 years.

The formula must be solved for P:

$\displaystyle P=\frac{I}{rt}$

Substituting:

$\displaystyle P=\frac{170}{0.048*5/12}$

$\displaystyle P=\frac{170}{0.02}=8,500$

Lisa borrowed $8,500