Multiple choice

A small business owner obtained a \$10,000 loan at a simple annual interest rate of r percent to purchase new office equipment. After one year, the owner made a single payment of \$11,200 to repay the loan, including the interest. What is the value of r?

  1. 10.5%

  2. 11.0%

  3. 11.5%

  4. 12.0%

  5. 12.5%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The interest earned is 11,200 - 10,000 = 1,200. Using the simple interest formula I = P*r*t, where P = 10,000, t = 1, and I = 1,200, we get 1,200 = 10,000 * r * 1. Solving for r gives r = 1,200 / 10,000 = 0.12, which is 12%.

AI explanation

The total interest paid is $11,200 minus $10,000, which equals $1,200. Using the simple interest formula, the rate is calculated as (1200 divided by 10000) multiplied by 100. This gives an annual interest rate of 12.0%.

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