You receive an email from a firm proposing the following business deal. The firm will send you $1,000 now, and in exchange you will send it $1,100 in one year. You will just break-even if the annual interest rate is _____%.

Question

Quizplus · Accepted Answer

Let's assume that the annual interest rate is r%.

According to the proposal, you will receive $1,000 now, and in one year's time, you will have to pay $1,100.

So, the amount you will have to pay after one year would be:

$1,000 * (1 + r) = $1,100

Simplifying this equation, we get:

1 + r = 1.1

r = 0.1 or 10%

Therefore, the answer is D, as you will just break-even if the annual interest rate is 10%.

You Receive an Email from a Firm Proposing the Following