What’s the simple interest?

Question

Find the simple interest rate on a loan if $130 is borrowed for 4 years and the balance ​

after 4 years is $171.60.

 

Answer 1

Simple interest means that you only gain interest on your initial amount, without gaining interest on any interest you've earned before.

Since we have the initial amount (I), the time frame (t), and the final amount (F), we can use a simple equation to solve for the rate (r).

The normal equation for simple interest (using the variables I've defined above) is: F = I + r*t

To solve for the rate, we modify this equation to: r = (F-I)/t.

To find our dividend, we take the final amount minus the initial amount, or $171.60 - $130.00 = $41.60.

The $41.60 is how much interest the loan has earned in 4 years. To find the rate, we need to know how much interest was earned in 1 year, so we divide $41.60/4, which equals a rate of $10.40/year.

r = $10.40/year