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18 March, 15:41

Leo paid $2400 in interest on an amount borrowed for 10 years at a 4% annual simple interest rate. How much did Leo borrow?

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  1. 18 March, 18:30
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    Answer: $6000

    Explanation:

    1) Simple interest means that the interests are calcualted over the original amount borrowed and they are the same every year.

    2) yearly interest = interest / number of years = $2400 / 10 = $240

    3) the yearly interest equals the amount borrowed times the simple intereset rate:

    => $240 = A * 4%

    => $240 = A * 0.04

    => A = $240 / 0.04 = $6000

    You can do the same in one step:

    interest = A * simple interest rate * number of years

    => A = interest / [simple interest rate * number of years] = $2400 / [4% * 10]

    A = $2400 / (0.04 * 10) = $2400 / 0.4 = $ 6000.

    And that is the answer: he borrowed $6000
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