Question

Lorelei is going to loan her sister money to go on a trip. She has decided to charge her interest . What factor should impact the interest rate that Lorelei sets?

A.
The bigger the loan, the less interest you should pay.

B.
Higher interest rates increase a person's interest to borrow money.

C.
The amount of money you get paid depends on the interest rate.

D.
Charging your sister interest on a loan is inappropriate.

Answer 1

C. The amount of money you get paid depends on the interest rate.

Explanation: The interest rate determines how much the borrower will pay in interest, so it directly affects the lender’s return. (In practice Lorelei should also consider loan size, repayment term, and default risk when setting the rate.)