You take out a 2-year, $5,000 loan at 7% simple annual interest. The lender charges you a $300 fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay Round answer to the nearest 0.001% .
A) $r = 100 \%$
B) $r = 2.06 \%$
C) $r = 6 \%$
D) $r = 10 \%$
E) $r = 0.127 \%$

Question

You take out a 2-year, $5,000 loan at 7% simple annual interest. The lender charges you a $300 fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay  Round answer to the nearest 0.001% .  
A) $r = 100 \%$
B)   $r = 2.06 \%$
C)  $r = 6 \%$
D)   $r = 10 \%$
E)  $r = 0.127 \%$

Quizplus · Accepted Answer

The actual interest paid over 2 years is the sum of the simple interest and the fee: $2 \times 0.07 \times 5000 + 300 = 700 + 300 = 1000$. The actual annual interest rate is the total interest and fees divided by the principal and the number of years: $\frac{1000}{5000 \times 2} = 0.1$ or 10%.

You Take Out a 2-Year, $5,000 Loan at 7% Simple r=100%r = 100 \%r=100%

You Take Out a 2-Year, $5,000 Loan at 7% Simple $r = 100 \%$