Question

A friend asks to borrow $49 from you and in return will pay you $52 in one year. If your bank is offering a 6.5% interest rate on deposits and loans:

A. How much would you have in one year if you deposited the $49 instead?

B. How much money could you borrow today if you pay the bank $52 in one year?

C. Should you loan the money to your friend or deposit it in the bank?

Answer 1

A.	$ 52
Working:
	Future value of deposit in 1 year	=	Deposit amount now	*	Future Value of 1
		=	49	*	(1+0.065)^1
		=	49	*	1.065
		=	52
B.	$ 49
Working:
	Present Value of money	=	Future Value of money	*	Present Value of 1
		=	52	*	(1+0.065)^-1
		=	52	*	0.938967136
		=	49
C.	Loan the money to friend or deposit into bank
Note:
	Future value of deposit in 1 year is the same amount what his friend is ready to payback.
	So, it will be indiiferent position as both option have same time value of money.