Final answer:
Determine the annual charge for interest, the simple interest formula is applied using the principal amount of $225,000, the annual interest rate of 3.5%, and the time of 1 year. The calculation reveals that the annual interest charge is $7,875 (option a).
Step-by-step explanation:
The question requires us to calculate the annual charge for interest on a loan. The Jonesville Construction company borrowed $225,000 at an annual simple interest rate of 3.5% for five years.
To find the annual interest charge, we apply the simple interest formula:
Interest (I) = Principal (P) × Rate (r) × Time (t)
Where:
- Principal (P) is the initial amount borrowed, which is $225,000.
- Rate (r) is the annual interest rate in decimal form, which is 3.5%, or 0.035.
- Time (t) is the time the money is borrowed for, which in this case, we only need 1 year for the annual charge.
Now, we compute the interest for one year:
I = P × r × t
I = $225,000 × 0.035 × 1
I = $7,875
Therefore, the annual charge for the interest is $7,875. The correct answer is option (a).