Question

Martin is offered an investment where for $6,000 ​today, he will receive $6,180 in one year. He decides to borrow $6,000 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. 2% B. 1% С. 4% D. 3%

Answer 1

Answer:

The correct answer is D. 3 % p. a .

Step-by-step explanation:

For the investment offered, Martin is supposed to get $180 as an interest ($6,180 - $6,000).

Now Martin is borrowing $6,000 from the bank to make this investment. He should be charged $180, so that he breaks even on investment.

Thus using the formula:

Interest= Principal × Time ( per annum) × $\frac{Interest rate}{100}$ ; (Here simple and compound interest are same as the sum borrowed is to be charged for a single year)

⇒ 180 = $\frac{6000}{100}$ × 1 × Interest rate

⇒ 180 = 60 × Interest rate

⇒ Interest rate = 3

Thus the correct answer is 3% per annum.