Question

you can borrow $5000 to finance a new business venture. this new venture will generate annual earnings of $251. the maximum interest rate that you would pay on the borrowed funds and still increase your income is

25%.

12.5%.

10%.

5%.

Explanation:

Step1: Define the formula for interest

The interest on the borrowed amount \( I \) is given by \( I = P \times r \), where \( P \) is the principal amount and \( r \) is the interest rate (in decimal). We want the interest to be less than or equal to the annual earnings (\$251) to still increase income. So, \( P \times r \leq 251 \), with \( P = 5000 \).

Step2: Solve for \( r \)

Substitute \( P = 5000 \) into the inequality: \( 5000 \times r \leq 251 \). Then, solve for \( r \): \( r \leq \frac{251}{5000} \). Calculate \( \frac{251}{5000}= 0.0502 \), which is approximately \( 5\% \).

Answer:

5% (the option with "5%")