Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is

Question

Quizplus · Accepted Answer

We can use the formula: 
Interest = (Principal x Rate x Time) 
where Time is in years and Rate is in decimal form.
In this case, we know:
Interest = $80 
Rate = 0.05 
We want to find Principal, which we can call P. 
We can rearrange the formula to solve for P: 
P = Interest / (Rate x Time)

We don't know Time, but we do know that it is one year (because the interest is annual). So: 
P = $80 / (0.05 x 1) = $1,600

Therefore, the loan amount is $1,600.

Suppose a Person Pays $80 of Annual Interest on a Loan