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Question 1101622: Larry is starting a small business and needs a loan. The bank offers Larry a $10,000 discounted loan at 4.5% for 7 years. What is the value of the proceeds Larry will get from the bank?
Proceeds =$6850
The actual question is the following: What is the equivalent simple interest rate Larry will be paying over the 7 years of his loan? Give your answer as a decimal rounded to the thousandths place.
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Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! Larry is starting a small business and needs a loan. The bank offers Larry a $10,000 discounted loan at 4.5% for 7 years. What is the value of the proceeds Larry will get from the bank?
Simple interest on the loan is 10000*0.045*7 = 3150 (interest paid at time of loan)
So Proceeds = 10,000 - 3150 = $6850 (amt. of money Larry actually receives)
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The actual question is the following: What is the equivalent simple interest rate Larry will be paying over the 7 years of his loan? Give your answer as a decimal rounded to the thousandths place.
Solve for "r" when I = 3150, P = 6850, and t = 7
I = P*r*t
3150 = 6850*r*7
Solve for "r":
r = 3150/(7*6850) = 0.0657
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Cheers,
Stan H.
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