A business owner borrows $8000.00 for 6 months. At the end of the six-month period, the interest owed is $160.00. What was the simple yearly interest rate?

Question

Percentages

Answer 1

If you don't like formulas or forget them, you can use simple intuition. The problem asks for yearly interest rate and gives you one half year (6 months). So the total interest is 2 x $160 = $320. The principal is $8000 so interest rate = (320/8000) X 100% = 4%.

Answer 2

I = prt

t = 0.5 (half a year); p = 8000; I = 1690

r = rate of interest per annum (per yr)

160 = 8000(r)(½)

 

Solve for r (decimal), then change to percentage by shifting the decimal point 2 places toward the right; r = 0.05 would be 5%, as an example.