Multiple choice

Boston and Willow borrowed same amount from Kimberly Finance at the same rate. Boston borrowed the money for 2 years and he had to pay \$416 including compound interest annually. Willow borrowed the money for 1 year and he had to pay \$400 including simple interest. At what rate percent did they borrow the money?

  1. 4%

  2. 14%

  3. 12%

  4. 8%

  5. 15%
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A Correct answer
Explanation

Let P be the principal and r be the rate. Willow: P + P*r = 400. Boston: P(1+r)^2 = 416. Dividing these, (1+r) = 416/400 = 1.04. Thus, r = 0.04 or 4%.

AI explanation

Using the compound interest formula, the amount Boston pays is P * (1 + r)^2 = 416, while Willow pays P * (1 + r) = 400 under simple interest for one year. Dividing the first equation by the second gives 1 + r = 416 / 400, which simplifies to 1 + r = 1.04. Solving for r shows the borrowing rate is 4%.

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