In the loan example, what was the total interest charged during the year?

In the loan example, what was the total interest charged during the year?

• A. 10,000
• B. 5,000
• C. 15,000
• D. 9,000

Answer: (A)

The main idea is calculating interest based on what was actually owed during the period. If the loan shows a balance of 100,000 outstanding for the whole year at a 10% annual rate, the interest charged for the year is 100,000 × 0.10 × 1 = 10,000. That is why the total interest charged equals 10,000—the calculation uses principal times rate times time (with time = 1 year in this scenario). If the balance had been owed only part of the year or the rate different, the number would change accordingly (for example, half a year would yield 5,000; a higher balance or rate would push the total higher). In this specific loan example, the numbers align to produce 10,000 as the total interest charged.

The main idea is calculating interest based on what was actually owed during the period. If the loan shows a balance of 100,000 outstanding for the whole year at a 10% annual rate, the interest charged for the year is 100,000 × 0.10 × 1 = 10,000. That is why the total interest charged equals 10,000—the calculation uses principal times rate times time (with time = 1 year in this scenario).

If the balance had been owed only part of the year or the rate different, the number would change accordingly (for example, half a year would yield 5,000; a higher balance or rate would push the total higher). In this specific loan example, the numbers align to produce 10,000 as the total interest charged.