Question

A person collected $1,400 on a loan of $1,200 they made 7 years ago. If the person charged simple interest, what was the rate of interest?

Answer 1

Solution:

The formula that we can apply in this case is the following:

$r\text{ = (}\frac{1}{t})(\frac{A}{P}-1)$

now, solving we get:

$r\text{ = (}\frac{1}{7})(\frac{1400}{1200}-1)=\text{ }0.02380952$

if we convert this amount into a percentage we get the final answer:

$0.02380952\text{ x 100\% = }2.381$

then, the correct answer is:

2.381% per year