You buy a stove for $1500 on February 20.The store gives you 4 months "interest free",after which you must pay the $1500.However,the store charges an administration fee of $50,to be paid today.What rate of simple interest,r,are you being charged for this "interest free" plan?

Question

Quizplus · Accepted Answer

Since you are paying $1500 after 4 months, the administration fee of $50 can be treated as a part of the principal amount. Therefore, the total amount that you will pay after 4 months is $1550.
Now we can use the simple interest formula:
I = Prt
where I is the interest, P is the principal, r is the interest rate and t is the time in years.
Here, we know P = $1500, I = $50, t = 4/12 = 1/3 years.
Substituting these values in the formula, we get:
50 = 1500*r*(1/3)
r = 50/(1500/3)
r = 0.0333
Convert r to a percentage:
r = 3.33%
Therefore, the interest rate being charged is 10.49% (rounded to two decimal places).

You Buy a Stove for $1500 on February 20