To determine the interest rate for this investment, we can first identify the net annual income generated from the new equipment, then relate it to the initial investment to find the interest rate.
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Calculate the annual profit:
- Annual income from the use of the equipment: $11,000
- Annual interest cost: $1,500
The net annual income from the equipment is: \[ \text{Net Annual Income} = \text{Annual Income} - \text{Annual Interest Cost} = 11,000 - 1,500 = 9,500 \]
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Use the formula for interest rate: The formula for calculating the interest rate (r) as a percentage is: \[ r = \left( \frac{\text{Annual Income} - \text{Annual Interest Cost}}{\text{Initial Investment}} \right) \times 100 \]
In this case:
- Annual income: $11,000
- Annual interest cost: $1,500
- Initial investment: $10,000
Substituting in the values: \[ r = \left( \frac{11,000 - 1,500}{10,000} \right) \times 100 \] \[ r = \left( \frac{9,500}{10,000} \right) \times 100 \] \[ r = 0.95 \times 100 = 95% \]
Therefore, the interest rate for this investment is 95%.