Question

Wilmont borrows $1,000 with an annual fixed interest rate on the loan of 12% and a loan term of 12 months. What is the periodic interest rate?

A) 0.01%
B) 0.02%
C) 0.03%
D) 1.0%

Answer 1

D) 1.0%

The monthly periodic interest rate is 1.0%, obtained by dividing the annual interest rate of 12% by 12.

Step-by-step explanation:

The periodic interest rate is the interest rate applied to a loan over a specific period, which in this case is monthly since the loan term is 12 months. Since Wilmont borrows $1,000 at an annual fixed interest rate of 12%, to find the monthly periodic interest rate, we divide the annual rate by the number of periods in a year, which is 12. Therefore, the monthly periodic interest rate is 12% / 12 = 1.0%.

The periodic interest rate can be calculated by dividing the annual interest rate by the number of periods in a year. Since the loan term is 12 months and the annual fixed interest rate is 12%, the periodic interest rate is 12% / 12 = 1%.