Asked by Iliana Napoles on May 01, 2024
Verified
The First National Bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years. What rate is the bank charging you?
A) 10%
B) 11%
C) 12%
D) 13%
Repay
To make a payment back to a lender or party from whom one has borrowed money or to whom one owes money.
Bank Charging
Fees or penalties charged by banks for their services, including account maintenance, ATM usage, and overdrafts.
Loan
A financial agreement in which one party lends money to another, which the borrower agrees to repay with interest over a specified period.
- Compute and elucidate the investment return rate.
Verified Answer
GM
Gabriella Melendez-RodriguezMay 06, 2024
Final Answer :
C
Explanation :
This is a problem of finding the interest rate for a loan with compound interest. We can use the formula for compound interest:
Future value = Present value x (1 + interest rate)^n
where:
Future value = $42,135
Present value = $30,000
n = 3 years
Substituting these values, we get:
$42,135 = $30,000 x (1 + interest rate)^3
Solving for the interest rate using a financial calculator, we get:
Interest rate = 12.10%
Since we need to choose from the given answer choices, the closest answer is C, which is 12%. Therefore, the best choice is C.
Future value = Present value x (1 + interest rate)^n
where:
Future value = $42,135
Present value = $30,000
n = 3 years
Substituting these values, we get:
$42,135 = $30,000 x (1 + interest rate)^3
Solving for the interest rate using a financial calculator, we get:
Interest rate = 12.10%
Since we need to choose from the given answer choices, the closest answer is C, which is 12%. Therefore, the best choice is C.
Learning Objectives
- Compute and elucidate the investment return rate.