If your receive $500 in simple interest on a loan that you made for $10,000 for 5 years, what was the interest rate you charged? Please show how you got to the answer
If your receive $500 in simple interest on a loan that you made for $10,000 for 5 years, what was the interest rate you charged? Please show how you got to the answer
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:To solve the problem of determining the interest rate, we can use the formula for simple interest:
Simple Interest = Principal x Rate x Time
Given:
- Simple Interest = $500
- Principal = $10,000
- Time = 5 years
We need to find the Rate (R).
Rearranging the formula to solve for Rate gives us:
Rate = Simple Interest / (Principal x Time)
Substitute the given values into the equation:
Rate = $500 / ($10,000 x 5)
Rate = $500 / $50,000
Rate = 0.01
To express the rate as a percentage, convert it by multiplying by 100:
Rate = 0.01 x 100 = 1%
Therefore, the interest rate charged was 1%.
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