Suppose That You Need $3000 to Purchase a Car

question 100

Multiple Choice

Suppose that you need $3000 to purchase a car. If you are applying for a discounted loan at an interest rate of 5% per year for two years, how much do you need to borrow to cover the principal?

• A) $3000
• B) $3111.11
• C) $3222.22
• D) $3333.33

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Definitions:

Bond Exchange

The process of trading bonds in the financial market, where investors buy and sell debt securities issued by entities like governments and corporations.

Market Rate of Interest

The prevailing rate of interest observed in the marketplace for loans and investments.

Trading

Buying and selling securities or commodities in financial markets, aiming for short-term profits.

Effective-Interest Method

A method of calculating the amortized cost of a bond and of interest expense over the bond's life, reflecting a constant rate of interest.