Question

A small company borrows $145,000 to buy packaging equipment. The bank requires a lump-sum payment of $159,000 exactly three years later. Determine (And show calulation steps)

a) The amount of interest paid.

b) The percent interest rate over the three year loan period.

c) The annual percent interest rate (assuming simple interest, with no compounding).

Answer 1

Answer a) The amount of interest paid / S.I = Amount - Principal

S.I = $1,59,000- $1,45,000 = $14000

Answer b) S.I = P*R/100 *T

P = Principal

R =Rate of interest

T =Time period

From the above

Simple interest = $14000

Principal = $145000

Rate of interest annual charged = ?

Time period = 3 years

14000= 1,45,000*R/100 *3

14000= 4350*R

R = 3.21%

Answer 3 : In simple interest rate , the annual interest rate is same as that there is 3.21% . It means that in simple interest rate is same as interest rate has been charged annually and principal amount remains same.