On this date last year you borrowed $7,450. You have to repay the loan principle plus all of the interest four years from today. The payment that is required at that time is $11,426. What is the interest rate on this loan?

Question

Quizplus · Accepted Answer

The interest rate can be found using the formula for compound interest, which is A = P(1 + r)^n, where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, and n is the time the money is invested or borrowed for, in years. Rearranging the formula to solve for r gives us r = [(A/P)^(1/n)] - 1. Plugging in the given values: A = $11,426, P = $7,450, and n = 4 years, we get r = [(11,426/7,450)^(1/4)] - 1, which calculates to an interest rate of approximately 8.93%.

On This Date Last Year You Borrowed $7,450