After Taking Out a One Year Loan with an Annual

question 109

Multiple Choice

After taking out a one year loan with an annual interest rate of 5 percent, Tommy pays $2,100 back to the bank. The principal of the loan must be ___________ and the interest payment must be ___________.

• A) $2,000; $100
• B) $2,100; $100
• C) $100; $2,100
• D) $100; $2,000

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Definitions:

Government-Approved Bank

A financial institution that has received official authorization from the government to operate within certain regulatory standards.

Depreciation

The reduction in the value of an asset over time, particularly due to wear and tear.

Foreign Exchange Market

A global decentralized or over-the-counter market for the trading of currencies, facilitating international trade and investment by enabling currency conversion.

Spot Exchange

Involves the immediate transaction or exchange of financial instruments or commodities for immediate delivery.