Question

Martin is offered an investment where for $4000 today, he will receive $4240 in one year. He decides to borrow $4000 from the bank to make this investment. What is the maximum interest rate the bank needs to offer on the loan if Martin is at least to break even on this investment?

A) 6%
B) 5%
C) 7%
D) 4%

Answer 1

Answer:

The maximum interest rate the bank needs to offer on the loan if Martin is at least to break even on this investment is A) 6%

Explanation:

The maximum interest rate the bank needs to offer on the loan if Martin is at least to break even on this investment is equal the interest rate of the investment.

Martin invests $4,000 today, he will receive $4,240 in one year.

Interest rate of the investment = ($4,240 - $4,000)/$4,000x100% = $240/$4,000x100% = 6%.

The maximum interest rate the bank needs to offer: 6%