Suppose that you borrow $20000.00 from a friend and promise to pay back $3560.00 in 4 years. What a simple interest rate will you pay?
To determine the simple interest rate, we can use the formula:
Interest = Principal x Rate x Time
Given:
Principal (P) = $20,000.00
Interest (I) = $3,560.00
Time (T) = 4 years
Substituting the given values into the formula, we get:
$3,560.00 = $20,000.00 x Rate x 4
Divide both sides by ($20,000.00 x 4):
Rate = $3,560.00 / ($20,000.00 x 4)
Rate = $3,560.00 / $80,000.00
Rate = 0.0445
Therefore, the simple interest rate you will pay is 0.0445 or 4.45%.