1954 AHSME Problems/Problem 33

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A bank charges $\textdollar{6}$ for a loan of $\textdollar{120}$. The borrower receives $\textdollar{114}$ and repays the loan in $12$ easy installments of $\textdollar{10}$ a month. The interest rate is approximately:

$\textbf{(A)}\ 5 \% \qquad \textbf{(B)}\ 6 \% \qquad \textbf{(C)}\ 7 \% \qquad \textbf{(D)}\ 9\% \qquad \textbf{(E)}\ 15 \%$

Solution

The borrower pays $\textdollar{120}$ in a single year for a loan of $\textdollar{114}$. This means that the bank charges an interest of $\textdollar{6}$ for a loan of $\textdollar{114}$ over a single year, so that the annual interest rate is $100*\frac{\textdollar{6}}{\textdollar{114}} = \frac{100}{19} \approx 5$ percentage points. Therefore, our answer is $\boxed{\text{(A)}$ (Error compiling LaTeX. Unknown error_msg) and we are done.

See Also

1954 AHSC (ProblemsAnswer KeyResources)
Preceded by
Problem 32
Followed by
Problem 34
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