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faust18 [17]
1 year ago
14

Liam borrowed a total of $35,000 to pay for college. he pays his parents 3% interest on the $8,000 he borrowed from them and pay

s the bank 6.8% on the rest. what average interest rate does he pay on the total $35,000? (round your answer to the nearest tenth of a percent.)
Business
1 answer:
Lana71 [14]1 year ago
6 0

Answer: Liam pays an average interest of 5.9% on the total $35,000.

Since the amounts borrowed and the respective interest rates are different, <u>the weighted average </u>will give us a better picture of the average interest paid on the loan.

We calculate weights based on the total amount borrowed.

                             Borrowing ($)                  Weights

Parents                     3000            \frac{3000}{35000} = 0.228571429

<u>Bank                       32000           \frac{32000}{35000} = 0.771428571 </u>

Total                       35000                                                                     1

Once we have the weights, we multiply the interest rates with the respective weights. Then we find the total of the (weights * Interest rate) column to find the weighted average or the average rate Liam pays.

                      Weights       Int Rates        Weights * Interest rates

Parents       0.228571429      0.03  0.228571429*0.03 = 0.006857143

<u>Bank           0.771428571       0.0680.771428571 *0.068 = 0.006857143</u>

Total                       1                                          0.059314286

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