Haywood Price purchased living room furniture for $1,860. He borrowed $1,200
and promised to repay the loan in 2 years. The finance charge was $308.25. To
the nearest hundredth of a percent, what is the annual percentage rate? *
Answers
Given : Haywood Price purchased living room furniture for $1,860.
He borrowed $1,200 and promised to repay the loan in 2 years.
The finance charge was $308.25.
To Find : annual percentage rate
Solution:
Loan Amount P = $ 1200
T = 2 Years
R = ?
Considering Simple interest
SI = 308.25. $
SI = P * R * T /100
=> 308.25 = 1200 * R * 2 /100
=> R = 308.25/24
=> R =12.84 % per annum
Considering compound interest
(1200 + 308.25) = 1200 ( 1 + R/100)²
=> 1.1211 = 1 + R/100
=> 0.1211 = R/100
=> R = 12.11 % per annum
12.84 % per annum - Simple interest
12.11 % per annum compound interest
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