Suppose First National Bank makes a one-year simple loan of $1000 to Harry's Restaurant. If at the end of one year Harry's Restaurant pays First National $1400, then the interest rate on this loan must have been
A)0.04%.
B)0.4%.
C)1.04%.
D)4%.

Question

Quizplus · Accepted Answer

The interest earned on the loan is the difference between the amount repaid and the principal borrowed, which is $1400 - $1000 = $400.

To find the interest rate, we can use the formula:

Interest = Principal x Rate x Time

where Time is the duration of the loan in years. Since this is a one-year loan, Time = 1.

Plugging in the values we know, we get:

$400 = $1000 x Rate x 1

Solving for Rate, we get:

Rate = $400/$1000 = 0.4 or 40%

Therefore, the interest rate on this loan is 4%.

Suppose First National Bank Makes a One-Year Simple Loan of $1000