Use the simple interest formula I=prt, where I is the interest, p the principal, r the annual interest rate, and t the time in years.
5 %
Practice makes perfect
If we borrow money from a bank, we pay the bank interest for the use of their money. Similarly, if we have an unpaid balance on a credit card, we also pay interest to the credit card company. To calculate the interest I, we use the simple interest formula.
I= p r t, where...
I& = Interest
p& = Principal
r& = Annual interest rate
t& = Time (in years)
We know that Samantha received a loan from the bank for $4500 and plans on paying off the loan in 4 years. At the end of 4 years, she will have paid $ 900 in interest. Let's substitute these values into the formula. To make the math easier, we will ignore the units for now.
I= p r t [0.3em] ⇓ [0.3em]
900= 4500* r * 4
Note that we got an equation that can help us to find the simple interest rate. Let's solve this equation for r. To do so, we will use the Division Property of Equality.
We found that r= 0.05 is a solution to the equation. We can write the solution as a percent by moving the decimal point two places to the right and writing the percent symbol.
r=0.05 = 5 %
The simple interest rate is equal to 5 %.
