Question

Your friend is asking a $55,000 loan from you with the following repayment schedule: End of year 1 $ 0 End of year 2 $ 11,000 End of year 3 $ 22,000 End of year 4 $ 33,000 You demand at least 8% return on this loan deal. Given the repayment schedule, what will be the maximum loan amount you are willing to offer to the borrower for a break-even deal?

Answer 1

In order to determine the break-even deal given the repayment schedule we need to find the present values of repayment @8%.

Thus;

Discounting factor=1/[(1+r)^n]

Thus, maximum loan that can be given is $51,151.02

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