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Interest Rates


Date: 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

    
Associated Topics:
High School Interest

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