Question

James borrows $4,200 to pay his college tuition. He signs a 5-year simple interest loan. lf the monthly payments are $78.40, what is the interest rate on the loan?
2%
2.4%
3%
3.2%

Answer 1

Total paid = 78.40 × 60 = 4,704.
Interest = 4,704 − 4,200 = 504.
r = I/(P·t) = 504/(4,200·5) = 504/21,000 = 0.024 = 2.4%.

Answer: 2.4%