Barney Casey borrowed $40,000 from his parents for 2 years. He paid them a total of $45,000 at the end of the 2-year term of the simple interest loan. What rate of interest did he pay his parents?

Answer 1

I = 45000 = 40000 = $5000.

Po*rt = I,
rt = I/Po = 5000 / 40000 = 0.125,
r = 0.125/t = 0.125 / 2 = 0.0625=6.25%.