Question

Hilaria borrowed \(8,000 from her grandfather to pay for college. Five years later, she paid him back the \)8,000, plus $1,200 interest. What was the rate of interest?

Short answer

The rate of interest at which she borrowed was 3%.

Step-by-step solution

Step. 1 Given Information

We have principle amount p = $8,000

Time in years t = 5 years

And the interest she returned I = $1200

Step. 2 Formula and calculation for simple interest

As we know the formula to find the simple interest is:

$$\begin{gathered} I=prt, \\ r=\frac{I}{pt}. \\ whereIistheinterest,pistheprincipleamountindollarsandtisthe \\ timeinyears. \end{gathered}$$

So, putting the values in the formula we get the total interest earned which is as follows:

$$\begin{gathered} r=\frac{I}{pt}, \\ r=\frac{1200}{8000\times 5} \\ r=0.03 \end{gathered}$$

Now to find the rate of interest we need to multiply r by 100. So,

$$\begin{gathered} r=0.03\times 100\% \\ r=3\%. \end{gathered}$$