Work through the next questions to find the interest rate on a loan of $85 loan for 9 months that earned $4.78.
1. Determine the total amount paid back on the loan.
Total amount paid back = Loan amount + Interest earned
Total amount paid back = $85 + $4.78
Total amount paid back = $89.78
2. Calculate the interest rate.
Interest = Total amount paid back - Loan amount
Interest = $89.78 - $85
Interest = $4.78
Interest = Principal x Rate x Time
$4.78 = $85 x Rate x 9 months
3. Solve for the interest rate:
Rate = $4.78 / ($85 x 9)
Rate = $4.78 / $765
Rate = 0.006247
Convert the decimal to a percentage:
Rate = 0.6247 x 100%
Rate = 0.6247%
Therefore, the interest rate on the loan of $85 for 9 months is approximately 0.6247% per month.