You could borrow $1,000 today from Bank A and repay the loan,with interest,by paying Bank A $1,060 one year from today.Or,you could borrow $1,500 today from Bank B and repay the loan,with interest,by paying Bank B $1,600 one year from today.Which of the following statements is correct?
A)The interest rate on the loan from Bank A is higher than the interest rate on the loan from Bank B.
B)The interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B.
C)The interest rates on the two loans are the same.
D)There is not enough information to determine which loan has the higher interest rate.

Question

Quizplus · Accepted Answer

To compare the interest rates on the loans, we need to calculate the annual percentage rate (APR) for each loan.
- For the loan from Bank A: the interest earned is $60 ($1,060 - $1,000). To find the APR, we divide the interest by the principal, multiply by 100, and divide by the time (in years). So, APR = ($60/$1,000) x 100 / 1 = 6%
- For the loan from Bank B: the interest earned is $100 ($1,600 - $1,500). To find the APR, we use the same formula: APR = ($100/$1,500) x 100 / 1 = 6.67%
Therefore, the interest rate on the loan from Bank A is lower than the interest rate on the loan from Bank B. So, the correct choice is B.

You Could Borrow $1,000 Today from Bank a and Repay