A small hotel plans to add four guest rooms, funded by a £90,000 bank loan. Before the loan is taken out, the central bank raises interest rates and the annual interest rate on the loan rises. The details are shown below.
| Expected annual return from the rooms | Loan amount | Interest rate before the rise | Interest rate after the rise |
|---|---|---|---|
| £5,400 | £90,000 | 5.0% | 6.5% |
Calculate the increase in the annual interest cost of the loan.
Explain whether the hotel should still go ahead with the project after the rise in the interest rate.
116 exam-style questions on OCR GCSE Economics 3.6 Monetary policy, covering 3.6.1 What is monetary policy, 3.6.2 Monetary policy and macro objectives, and 3.6.3 Effects of monetary policy. Each one has a worked solution and a mark scheme showing where the marks go.