Interest RatesDate: 4/4/96 at 0:6:41 From: Rita Turnman Subject: Simple Interest Question: At what rate of simple interest would the amount to be repaid on a loan be triple the principal of the loan after 25 years? Date: 4/16/96 at 10:52:13 From: Doctor John Subject: Re: Simple Interest The formula for simple interest is I = P(r/100)t P is the original amount of the loan r is the annual interest rate in percent, and t is the time in years The key to this problem is finding the right values for P and I. It turns out that it really doesn't matter. To make our lives simple, let P = $1. Then, if the repayment is going to be $3, the interest must be I = $2. Put these values into the equation with t = 25 years, and solve for r. You should get r = 8 percent. In reality, most loans are given with compound interest. Basically, this means that you pay interest on your interest from past years. The interest on a real loan at 8 percent would be significantly higher. -Doctor John, The Math Forum |
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