Asked by Caroline Bachus on Jun 05, 2024
Verified
Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan.The interest rates on the two loans are:
A) 14 percent and 20 percent,respectively.
B) 14 percent on both loans.
C) 18.8 percent on both loans.
D) 1.4 percent and 11.8 percent,respectively.
Loan
A borrowed sum of money that is expected to be paid back with interest.
Interest Payments
Payments made to lenders as compensation for the use of borrowed money, typically calculated as a percentage of the principal amount.
Interest Rates
The cost of borrowing money or the return on investment capital, expressed as a percentage of the money borrowed or invested.
- Acquire a rudimentary knowledge of interest rates, the significance of the time value of money, and the market for loanable funds.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
B
Explanation :
To find the interest rate, we need to use the formula:
Interest Rate = (Interest / Principal) * 100
For the $1,000 loan, we have:
Interest Rate = (140 / 1000) * 100 = 14%
For the $8,485 loan, we have:
Interest Rate = (1188 / 8485) * 100 = 14%
Therefore, the interest rate on both loans is 14%, and the answer is choice B.
Interest Rate = (Interest / Principal) * 100
For the $1,000 loan, we have:
Interest Rate = (140 / 1000) * 100 = 14%
For the $8,485 loan, we have:
Interest Rate = (1188 / 8485) * 100 = 14%
Therefore, the interest rate on both loans is 14%, and the answer is choice B.
Learning Objectives
- Acquire a rudimentary knowledge of interest rates, the significance of the time value of money, and the market for loanable funds.