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?

The interest rate would be 2.4%.

We start out finding the total amount he pays, including interest.

78.40/month * 12 months * 5 years = $4704

We take off the amount of principal:

4704-4200 = 504

This is the amount of interest he pays. Now we use the simple interest formula, I=prt:

504=4200 (r) (5)

Multiply 4200 and 5:

504=21000r

Divide both sides by 21000:

504/21000 = 21000r/21000

0.024 = r

2.4% = r