Question

A newly married couple took out a 5-year $30,000 loan for their wedding. After 5 years, they paid a total of $32,800 back to the bank. What was the interest rate on the loan?

Answer 1

Interest = Future value - Principal
I = $ 32800 - $ 30000 = $ 2800

Answer 2

Interest at the end of 5 years. Time = 5 years, Principal = $30000  

I = 32800 - 30000 = 2800.

Assuming simple interest.

I = PRT

2800 = 30000*R * 5

30000*R * 5 = 2800

R = 2800 /(30000*5)

R ≈ 0.018667

R ≈ 1.8667 %

Interest ≈ 1.8667% per year.