2.
Premier Bank loaned a construction company $275,000 at an annual simple interest rate. After 5 years, the company repaid the bank $350,625. What was the interest rate on the loan?
0.55%
5.5%
0.055%
55%
To find the interest rate, we can use the formula for simple interest:
I = P * r * t
where I is the interest, P is the principal (loan amount), r is the interest rate, and t is the time in years.
We know that the loan amount (P) is $275,000, the repayment amount (P + I) is $350,625, and the time (t) is 5 years. We need to find the interest rate (r).
Substituting the given values into the formula, we have:
350,625 = 275,000 * r * 5
Dividing both sides by (275,000 * 5):
r = 350,625 / (275,000 * 5) = 0.255
Now, we need to convert this decimal into a percentage by multiplying by 100:
r = 0.255 * 100 = 25.5%.
Therefore, the interest rate on the loan is 25.5%.