Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan
amount is:
A. $400.
B. $1,600.
C. $160.
D. $85.
10. Suppose a loan customer is considering two alternative $22,000 loans. Loan 1 requires payment of $1,100
of interest each year and Loan 2 has a 6 percent annual interest rate. Other things equal, the loan customer will:
A. be indifferent between the two loans because they both have the same annual percentage rate.
B. reject both loans because they each carry too high an interest rate.
C. choose Loan 1 because it has a lower annual interest rate than Loan 2.
D. choose Loan 2 because it has a lower annual interest rate than Loan 1.
1.
0.05x = 80
x = 80/0.05
x = ?
10. Use the same procedure to find the answer for 10.
160
To answer these questions, we need to understand the relationship between the loan amount, annual interest, and annual interest rate.
Question 1:
We are given that the person pays $80 of annual interest on a loan with a 5 percent annual interest rate. We need to find the loan amount.
We can use the formula for calculating interest: Interest = Loan Amount * Interest Rate.
Let's substitute the given values: $80 = Loan Amount * 0.05.
Now we can solve for Loan Amount. Dividing both sides of the equation by 0.05, we get:
Loan Amount = $80 / 0.05 = $1600.
Therefore, the loan amount is $1,600.
Answer: B. $1,600.
Question 2:
We are comparing Loan 1, which requires payment of $1,100 of interest each year, with Loan 2, which has a 6 percent annual interest rate. We need to determine which loan the customer will choose.
To compare the two loans, we need to consider the total interest paid over the term of the loan. Loan 1 has a fixed interest payment of $1,100 each year, while Loan 2 has a 6 percent annual interest rate.
Let's calculate the total interest paid over the term of each loan:
Loan 1: $1,100 * number of years
Loan 2: Loan Amount * Interest Rate * number of years
Since the loan amounts are not given, we cannot determine the exact total interest paid. However, we can make some general observations based on the given information:
Loan 1 has a fixed interest payment each year, which means the total interest paid would be higher if the loan term is longer.
Loan 2 has a variable interest payment based on the loan amount, which means the total interest paid would increase as the loan amount increases.
Without more information about the loan terms and the loan amounts, we cannot determine which loan the customer will choose based solely on the provided information.
Answer: A. The loan customer will be indifferent between the two loans because they both have the same annual percentage rate.