A student borrowed some money from his father at 2% simple interest to buy a car. If he paid his father $360 in interest after 3 years, how much did he borrow?
How much did he borrow?
Okay Lucy this is the equation for simple interest:
P * R = I
P = principle or amount borrowed
R = rate of interest per term (which in this case appears to be annual)
I = Interest per term (which in this case appears to be annual)
Since it is simple interest the principle is constant.
So $360/3 years = $120 per year which is 2% of the principle per year
therefore from the equation we rearrange to get:
P = I/R
so P = $120/0.02 = $6000 (remember the decimal equivalent of the rate of interest)
each year he paid 2% of $6000 or a total amount of 6% of $6000 for a total of 0.06($6000) = $360
Now you want to know how much he borrowed which would be the principle of $6000.
Hope this helps!
Let's first look at how interest works.
If I borrow $1000 from you at 5% interest per year, after 1 year I will have to pay you $1000 plus 5% of $1000. Now, 5% means 5/100, so 5% of $1000 is 5/100 times 1000, which is 5 times 1000/100 which is 5 times 10 = $50. So after 1 year I would have to pay you back $1000 plus $50, which is $1050.
After 2 years, I would have to pay you $1000 plus $50 for the 1st year plus $50 for the 2nd year, which would be $1100.
So the interest I owe you would be the loan amount ($1000) times the interest rate (5%, or 5/100) times the time (2 years).
In your problem, we know the interest, the interest rate, and the time. So we would say that the interest ($360) is equal to the loan amount (unknown) times the interest rate (2%, or 2/100) times the time (3 years). At this point, we have to do a little algebra:
360 = 2 * 3 * x / 100
The opposite of dividing by 100 is multiplying by 100, so
360 * 100 = 2 * 3 * x,
36000 = 6x (divide both sides by 6)
x = 6000.
The student borrowed $6000 from his father and bought a very reliable, cheap used car, or maybe a fancy, but not very dependable pre-owned car!
360/3(years)= 2% of Principle
120=2% of principle
Hope this was a helpful alternative to formula thinking
You can use the simple interest formula to solve this. I=Prt
We know the interest (I), the rate (r) and the time (3) with the principal (P) as the variable, so the equation looks like this: 360=P(.02)(3)
When you know the formula, this kind of problem is easy! Best of luck to you!