Dominic pays 5% interest on his
$19000 college loan and 12% interest on his $24000 car loan. What average interest rate does he pay on the total
$43000 he owes? Round your answer to the nearest tenth of a percent.
(5+12)/2 = 8.5%.
To find the average interest rate Dominic pays on his total debt, we need to calculate the weighted average of the interest rates on his college loan and car loan.
Step 1: Calculate the weighted interest rate for each loan.
Weighted Interest Rate for College Loan:
- Principal (Amount): $19,000
- Interest Rate: 5%
Weighted Interest Rate for Car Loan:
- Principal (Amount): $24,000
- Interest Rate: 12%
Step 2: Calculate the weighted interest rate proportionate to the total loan amount.
Weighted Interest Rate for College Loan = Principal (Amount) * Interest Rate = $19,000 * 0.05 = $950
Weighted Interest Rate for Car Loan = Principal (Amount) * Interest Rate = $24,000 * 0.12 = $2,880
Step 3: Calculate the total weighted interest rate.
Total Weighted Interest Rate = Weighted Interest Rate for College Loan + Weighted Interest Rate for Car Loan = $950 + $2,880 = $3,830
Step 4: Calculate the average interest rate.
Average Interest Rate = Total Weighted Interest Rate / Total Debt Amount = $3,830 / $43,000 ≈ 0.0891
Step 5: Convert the average interest rate to a percentage.
Average Interest Rate (in percentage) ≈ 0.0891 * 100 ≈ 8.91%
Therefore, Dominic pays an average interest rate of approximately 8.91% on his total debt of $43,000.