Step 1

We can start with the simple interest formula:

Where:

• I is the interest ($3000)
• P is the principal ($12,000)
• r is the interest rate per year (we will be calculating this)
• t is the loan duration in years (5 years).

Step 2

With I=3000, P=12,000 and t=5, we can substitute these values into the formula as shown:

Step 3

Now we have, 60000r = 3000. To find r, we have to divide both sides of the equation with 60000. This is shown below:

Step 4

Hence, we have, r = 0.05. It is better to express 0.05 in percent. To do so, we multiply 0.05 with 100% as shown:

Step 5

The calculated interest rate is 5%. Clearly, the answer is D.