Chapter 24, Problem 1MCQ

To determine

The correct option that measures the interest rate on a loan.

Answer to Problem 1MCQ

Option d is correct.

Explanation of Solution

Explanation for the correct option:

d.

Interest rate is expressed in terms of percentage. It measures the percentage of borrowed capital that the borrower should pay to the lender for using borrowed capital today. Therefore, option a is correct.

Explanation for incorrect options:

a.

The principal amount must be paid back by the borrower. Interest rates are charges on the amount borrowed for using money today. Therefore, option a is incorrect.

b.

The interest rate is charged today on the amount borrowed today rather than tomorrow. Therefore, option b is incorrect.

c.

The profit earned on the amount of dollars invested today is different from that of the interest rate as interest rates are charged by the borrowers for lending money. Therefore, option c is correct.

e.

Since all options are not correct. Therefore, option e is incorrect.

Economics Concept Introduction

Interest rates: The rates that were charged by the investor who is ready to lend his/her money for a certain period of time to the borrower.