Question

Martin is offered an investment where for $6000 today, he will receive $6180 in one year. He decides to borrow $6000 from the bank to make this investment. What is the maximum interest rate the bank needs to offer on the loan if Martin is at least to break even on this investment?A) 3%B) 4%C) 2%D) 1%

Answer 1

Answer:

maximum interest rate = 3%

so correct option is A) 3%

Explanation:

given data

investment = $6000

receive = $6180

borrow = $6000

to find out

maximum interest rate bank needs to offer on the loan

solution

we consider here maximum interest rate bank needs to offer is = r

so value of investment will be express here as

value of investment = amount to be borrowed × ( 1 + r )    ................1

put here value we get rate r

6180 = 6000 × ( 1 + r )

solve it we get

rate = 0.03

maximum interest rate = 3%

so correct option is A) 3%