Asked by Story Kremin on May 18, 2024
Verified
Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate.The loan amount is:
A) $400.
B) $1,600.
C) $160.
D) $85.
Annual Interest
The amount of interest paid or earned over a one-year period, typically expressed as a percentage of the principal sum.
Loan Amount
The total sum of money borrowed from a lender that is expected to be repaid with interest.
Interest Rate
This is a fee, calculated as a percentage, that lenders charge borrowers for the use of their money or that borrowers earn on deposits.
- Master the essential elements of interest rates, the valuation of money over time, and the interaction between supply and demand for loanable funds.
Verified Answer
PC
Palak ChaudharyMay 22, 2024
Final Answer :
B
Explanation :
We can use the formula:
interest = (loan amount) x (interest rate)
to solve for the loan amount.
Plugging in the given values, we get:
$80 = (loan amount) x 0.05
Solving for the loan amount, we get:
loan amount = $80 / 0.05 = $1,600
Therefore, the best choice is B, which corresponds to a loan amount of $1,600.
interest = (loan amount) x (interest rate)
to solve for the loan amount.
Plugging in the given values, we get:
$80 = (loan amount) x 0.05
Solving for the loan amount, we get:
loan amount = $80 / 0.05 = $1,600
Therefore, the best choice is B, which corresponds to a loan amount of $1,600.
Learning Objectives
- Master the essential elements of interest rates, the valuation of money over time, and the interaction between supply and demand for loanable funds.