Multiple choice

John took a loan for his home renovation at a simple interest rate of 5% per annum for the first year. The interest rate increased by 2% per annum for each subsequent year. After 4 years, he paid a total of $8,000 as interest. What was the loan amount?

  1. $20,000
  2. $22,500
  3. $25,000
  4. $27,500
  5. $30,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Let P be the principal. Interest = P * (5/100 * 1 + 7/100 * 1 + 9/100 * 1 + 11/100 * 1) = P * (32/100) = 8000. P = 8000 * 100 / 32 = 25000.

AI explanation

The interest rates for the four years are 5%, 7%, 9%, and 11%, which sum up to 32%. Using the simple interest formula for varying rates, the total interest equals Principal times the sum of rates divided by 100, giving 8000 = Principal times 32 divided by 100. Solving for the principal gives Principal = 800000 divided by 32, which results in a loan amount of $25,000.

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