Now that we know what formulas to use and when to use them lets show how it works.....
Juanito Borrowed $6,000.00 for one year and paid $520.00 in interest. What was the interest rate he paid?
Known: I (Interest Income), P (Principle) , and T (Time)
P = $6,000.00 ( Principal amount of loan)
I = $520.00 ( Interest income bank made on the loan)
T = 1 year , 365 days
Unknown: I (Interest Rate) -----
What we dont know is the interest rate Juanito paid for the year.
Formula: R = I / (P x T) , or Rate = Income / Principle x Time
R = I / (P x T)
R = $520.00 / ($6,000.00 x 1)
R = $520.00 / $6,000
R = 0.0867
R = 0.0867 = 8.67 %
Typical interest rates on consumer credit cards nowadays range from 7 %-23 %
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