Question

Your company wants to sell a loan to only one new tech company this year and needs to determine which of three companies to choose. Company A needs a loan for $2.5 million that accrues $500,000 of interest in year 1. Company B needs a loan for $1.7 million that accrues $612,000 of interest in year 1. Finally, Company C needs a loan for $3 million that accrues $540,000 of interest in year 1.

Answer 1

Ans: Company B

Explanation:

From Company A, return % in terms of interest in 1 year = (Interest amount in one year / Principal amount )*100

= ( 500000 / 2500000 ) *100

= 0.2 = 20%

From Company B , return % in terms of interest in 1 year = ( Interest amount in one year / Principal amount )*100

= ( 612000 / 1700000 ) *100

= 0.36 = 36%

From Company C , return % in terms of interest in 1 year = ( Interest amount in one year / Principal amount )*100

= ( 540000 / 3000000 ) *100

= 0.18 = 18%

So it is cleared from the above calculation, Company B gives highest return on loan amount.