Using simple interest, it is found that Ellie borrowed 150 units of money.
Simple Interest
Simple interest is used when there is a single compounding per time period.
The amount of interest after t years in is modeled by:
[tex]I = Prt[/tex]
In which:
- r is the interest rate, as a decimal.
In this problem:
- Rate of 6 1/2%, that is, r = 0.065.
- After 4 years, hence t = 4.
- She owes 39 interest, that is, I = 39.
Then, solving for P, we find the amount she borrowed.
[tex]I = Prt[/tex]
[tex]39 = P(0.065)(4)[/tex]
[tex]P = \frac{39}{0.065(4)}[/tex]
[tex]P = 150[/tex]
Ellie borrowed 150 units of money.
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