Andy lends Ben 100 Ben repays Andy 108 in one year What is t

Andy lends Ben $100. Ben repays Andy $108 in one year. What is the simple interest rate on this loan?

$8

$108

8%

10.80%

108%

Solution

ANSWER:

Present value = $100

Future value = $108

n = 1 year

fv = pv(f/p,i,n)

108 = 100(f/p,i,1)

108 / 100 = (f/p,i,1)

1.08 = (f/p,i,1)

via trial and error i = 8%

so the simple interest rate is 8% that is option c.