Barney Casey borrowed $40,000 from his parents for 2 years. He paid them a total of $45,000 at the end of the 2-year term of the simple interest loan. What rate of interest did he pay his parents?
I = 45000 = 40000 = $5000.
Po*rt = I,
rt = I/Po = 5000 / 40000 = 0.125,
r = 0.125/t = 0.125 / 2 = 0.0625=6.25%.
To find the rate of interest, we need to first calculate the interest. The formula for simple interest is:
Interest = Principal * Rate * Time
Where:
- Principal is the initial amount borrowed ($40,000 in this case).
- Rate is the interest rate.
- Time is the duration of the loan.
From the problem, we know that Barney borrowed $40,000 for 2 years and paid a total of $45,000 at the end of the loan.
We can use the formula to calculate the interest:
Interest = Total Amount Paid - Principal
In this case, the total amount paid is $45,000.
Interest = $45,000 - $40,000
Interest = $5,000
Now, we can rearrange the formula for simple interest to solve for the rate:
Rate = Interest / (Principal * Time)
Rate = $5,000 / ($40,000 * 2)
Rate = $5,000 / $80,000
Rate = 0.0625 or 6.25%
Therefore, Barney paid his parents an interest rate of 6.25%.