Questions: Find the annual simple interest rate (in percent) on a 3 -month loan of 4,000 if the maturity value of the loan is 4,120.

Solution Steps

• Principal (P) = $4,000
• Maturity value (A) = $4,120
• Time (T) = 3 months = 3/12 years = 1/4 years

Interest (I) = Maturity value (A) - Principal (P) \[ I = 4120 - 4000 = 120 \]

The simple interest formula is: \[ I = P \times R \times T \] Rearrange to solve for the annual interest rate (R): \[ R = \frac{I}{P \times T} \] Substitute the known values: \[ R = \frac{120}{4000 \times \frac{1}{4}} \] \[ R = \frac{120}{1000} \] \[ R = 0.12 \]

Final Answer