Question

The first national bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years. what rate is the bank is charging you

Answer 1

To compute for the rate for the year, the formula that we will be using would be the r = I / Pt.

Where:

r = interest rate

I = interest; to solve for the interest, we know that our principal value is $30,000 and our future value is $42,135, just deduct the $30,000 from there, and you can get the interest. $42,135 – $30,000 = $12,135

P = principal = $30,000

t = time = 3 years

 

r = 12,135 / (30,000) (3)

r = 12,135 / 90,000

r = 0.1348 or 13.48%

 

to check, use the I = Prt then just add the Principal to get the future value

I = Prt

= 30,000 * 0.1348 * 3

= 12,135

 

Future value = P + I

= 30,000 + 12,135

= 42, 135