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Tom is a mushroom farmer and he invests all his spare cash in additional mushrooms, which grow on otherwise useless land the mushrooms double in size during their first year, after which they are harvested and sold at a constant price year round. Tom's friend asks him for a loan of $200, which he promises to repay after a year. How much interest he will his friend have to pay?

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eooyibo123

Answer:

Tom planted mushrooms in the last year and got double the size he planted.

If he invested the $200 his friend is asking for and the trend from last year continues, he will have $400 worth of mushrooms by the end of the year.

So the best option for Tom to get returns on his money is if his friend will give him at least $200 in interest by year end.

This way Tom would not have lost by borrowing his friend $200

Parrain

The interest rate that his friend will have to pay based on the amount Tom could have made from the mushrooms is 100%.

Determining the Interest Rate

If Tom invests the $200 in mushrooms, this money will double in a year because the mushrooms double in size per year.

If Tom loans this money out instead, it would only make financial sense to loan it at the same rate he would have made from the mushrooms.

That rate is double or 100%.

In conclusion, the rate is 100%.

Find out more on rates of return at https://brainly.com/question/1698368.

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