Question

Helen borrowed $8,000 from her grandfather to pay for college. Five years later, she paid him back the $8,000 and an interest of $1,200 . What was the annual interest rate?

Answer 1

Answer:

3%.

Step-by-step explanation:

We have been given that Helen borrowed $8,000 from her grandfather to pay for college. Five years later, she paid him back the $8,000 and an interest of $1,200.

We will use following formula to find the annual interest rate.

$I=PrT$, where,

$I= \text{Amount of interest}$,

$P= \text{Principal amount}$,

$r= \text{Annual interest rate in decimal form}$,

$T= \text{Time in years}$.

Upon substituting our given values in above formula we will get,

$1,200=8,000*r*5$

$1,200=40,000*r$

Upon dividing both sides of our equation by 40,000 we will get,

$\frac{1,200}{40,000}=\frac{40,000*r}{40,000}$

$\frac{12}{400}=r$

$\frac{3}{100}=r$

$0.03=r$

Since our interest rate is in decimal form,let us convert it in percentage by multiplying 0.03 by 100.

$r=0.03\times 100=3\%$

Therefore, the annual interest rate was 3%.