BB&C 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%

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to solve for the interest rate:

Future value = Present value x (1 + interest rate)^n

where:
Present value = $30,000
Future value = $42,135
n = 3 years

42,135 = 30,000 x (1 + interest rate)^3
1 + interest rate = (42,135/30,000)^(1/3)
1 + interest rate = 1.12
interest rate = 0.12 or 12%

Therefore, the bank is charging a rate of 12%. Option (C) is the correct answer.

BB&C Bank Has Agreed to Lend You $30,000 Today, but You