You buy a stove for $1500 on March 20,2010.The store gives you 4 months "interest free",so on July 20,2010 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

To find the rate of simple interest, we need to use the formula:

I = Prt

Where I is the interest, P is the principal (the amount borrowed), r is the annual interest rate, and t is the time in years.

Since the plan is "interest free", the interest charged should be zero. However, the administration fee of $50 is equivalent to an interest charge. We can assume that this fee is the only charge, and that the principal is the same as the purchase price: $1500.

So, we have:

50 = 1500 * r * (4/12)

Simplifying:

50 = 500 * r

r = 50/500 * 100 = 10%

Therefore, the rate of simple interest being charged is 10%, which corresponds to answer choice C.

You Buy a Stove for $1500 on March 20,2010