Suppose that you borrow $20000.00 from a friend and promise to pay back $3290.00 in 3 years. What a simple interest rate will you pay?
To calculate the simple interest rate, we can use the formula:
Simple Interest = Principal × Interest Rate × Time
In this case, the Principal (P) is $20,000, the Simple Interest (I) is $3,290, and the Time (T) is 3 years. Therefore, rearranging the formula, we have:
Interest Rate = Simple Interest / (Principal × Time)
Interest Rate = $3,290 / ($20,000 × 3)
Interest Rate = $3,290 / $60,000
Interest Rate = 0.0548 or 5.48%
Therefore, the simple interest rate you will pay is 5.48%.