Bob loaned Bill $120. After 3 years, Bill paid off the loan(principal+interest) with a one time payment of $145.20. What was the simple annual interest rate?

Question

I'd love it if someone could set up a formula for me

Answer 1

120 * (1 + R)^3 = 145.20 where R is the interest rate

 

(1 + R)^3 = 145.20/120 = 1.21

 

 1+ R = 1.21^(1/3)  <--- cube root of 1.21

 

1 + R = 1.06560223677...

 

R = 1.06560223677.... - 1

 

R = 0.06560223677..

 

So the interest rate is just over 6.5%

 

 

Check:

   120 * 1.065 = 127.80

   127.80 x 1.065 = 136.10

   136.10 * 1.065 = 144.95