Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is __________, and the interest is __________.

Question

Quizplus · Accepted Answer

The interest rate is calculated as the interest paid divided by the principal amount borrowed. Here, the interest paid is $1,070 - $1,000 = $70. Therefore, the interest rate is $70 / $1,000 = 0.07 or 7 percent. The interest is the additional amount paid over the borrowed amount, which is $70.

Suppose You Borrow $1,000 Today with the Promise to Pay