If the interest on a loan is $200 and the principal amount is $1,000, what is the interest rate?

If the interest on a loan is $200 and the principal amount is $1,000, what is the interest rate?

• A. 5%
• B. 15%
• C. 20%
• D. 25%

Answer: (C)

To find the interest rate, you can use the formula for simple interest, which is: \[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \] In this scenario, the interest earned is $200 and the principal amount is $1,000. For the sake of this calculation, we will assume that the interest is for one year (Time = 1). Rearranging the formula to solve for the interest rate (Rate), we get: \[ \text{Rate} = \frac{\text{Interest}}{\text{Principal} \times \text{Time}} \] Substituting the known values into the equation: \[ \text{Rate} = \frac{200}{1000 \times 1} = \frac{200}{1000} = 0.2 \] To convert this decimal into a percentage, you multiply by 100: \[ 0.2 \times 100 = 20\% \] Thus, the interest rate is 20%. This calculation demonstrates that when the interest earned ($200) is compared to the principal amount ($1,000), it represents 20% of the original amount borrowed

To find the interest rate, you can use the formula for simple interest, which is:

[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} ]

In this scenario, the interest earned is $200 and the principal amount is $1,000. For the sake of this calculation, we will assume that the interest is for one year (Time = 1).

Rearranging the formula to solve for the interest rate (Rate), we get:

[ \text{Rate} = \frac{\text{Interest}}{\text{Principal} \times \text{Time}} ]

Substituting the known values into the equation:

[ \text{Rate} = \frac{200}{1000 \times 1} = \frac{200}{1000} = 0.2 ]

To convert this decimal into a percentage, you multiply by 100:

[ 0.2 \times 100 = 20% ]

Thus, the interest rate is 20%. This calculation demonstrates that when the interest earned ($200) is compared to the principal amount ($1,000), it represents 20% of the original amount borrowed