To solve a loan problem, you would use the formula for interest:

To solve a loan problem, you would use the formula for interest:

• A. Interest = Rate × Balance
• B. Interest = Balance ÷ Rate
• C. Interest = Rate ÷ Balance
• D. Interest = Balance × 100

Answer: (A)

Interest on a loan is found by multiplying the amount owed (the balance or principal) by the interest rate for the period, with the rate expressed as a decimal. This multiplication shows how much cost is added for borrowing per period. For example, if you owe $1,000 and the annual rate is 5%, the interest for the year is 1,000 × 0.05 = $50. This is why the correct approach is Interest = Balance × Rate. The other forms aren’t correct: dividing by the rate or by the balance doesn’t yield a dollar amount of interest, and multiplying by 100 would simply convert a decimal to a percentage rather than compute the interest itself. If the rate is given as a percentage, convert it to a decimal first (5% becomes 0.05) before multiplying by the balance.

Interest on a loan is found by multiplying the amount owed (the balance or principal) by the interest rate for the period, with the rate expressed as a decimal. This multiplication shows how much cost is added for borrowing per period. For example, if you owe $1,000 and the annual rate is 5%, the interest for the year is 1,000 × 0.05 = $50. This is why the correct approach is Interest = Balance × Rate. The other forms aren’t correct: dividing by the rate or by the balance doesn’t yield a dollar amount of interest, and multiplying by 100 would simply convert a decimal to a percentage rather than compute the interest itself. If the rate is given as a percentage, convert it to a decimal first (5% becomes 0.05) before multiplying by the balance.