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QuestionLily paid off a \$400 loan with \$60 interest at a 5% rate. How many years was the loan? A) 2 B) 3 C) 4.5 D) 5

Studdy Solution

STEP 1

Assumptions1. The loan amount is 400.Theinterestpaidis400. The interest paid is 603. The annual interest rate is5%
4. The interest is calculated as simple interest, not compounding5. The time for repayment is what we are trying to find

STEP 2

We need to use the formula for simple interest to solve this problem. The formula for simple interest isInterest=Principal amounttimesInterest ratetimesTimeInterest = Principal\, amount \\times Interest\, rate \\times Time

STEP 3

We can rearrange the formula to solve for timeTime=InterestPrincipal amounttimesInterest rateTime = \frac{Interest}{Principal\, amount \\times Interest\, rate}

STEP 4

Now, plug in the given values for the interest, principal amount, and interest rate to calculate the time.
Time=$60$400times%Time = \frac{\$60}{\$400 \\times\%}

STEP 5

Convert the percentage to a decimal value.
5%=0.055\% =0.05Time=$60$400times0.05Time = \frac{\$60}{\$400 \\times0.05}

STEP 6

Calculate the time.
Time=$60$400times0.05=3 yearsTime = \frac{\$60}{\$400 \\times0.05} =3\, yearsSo, Lily had this loan for3 years. The correct answer is B)3.

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