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28 February, 06:48

TJ borrowed $1200 in student loans. He will make 45 equal monthly payments of $54.50 to pay off the loan. What is the simple interest rate for the loan?

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  1. 28 February, 09:11
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    The rate of the loan is 2.32% monthly or 27.84% annually.

    Step-by-step explanation:

    Let's recall the formula of the Simple interest:

    A = P * (1 + rt)

    Where:

    A = Total Loan (money received + interest)

    P = Initial loan

    r = Rate of Interest

    t = Time Period involved in months

    A = 54.50 * 45 = $ 2,452.50

    Replacing with the real values, we have:

    A = P * (1 + rt)

    2,452.50 = 1,200 * (1 + 45r)

    2,452.50 = 1,200 + 54,000r

    54,000r = 2,452.50 - 1,200

    54,000r = 1,252.50

    r = 1,252.50/54,000

    r = 0.0232 = 2.32%

    The rate of the loan is 2.32% monthly or 27.84% annually.
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