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. 6.1% 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?

a. How much would you have in one year if you deposited the $49 ​instead? round to nearest cent

b. How much money could you borrow today if you pay the bank $52 in one​ year? round to nearest cent

c. Should you loan the money to your friend or deposit it in the​ bank?  From a financial​ perspective, you should lend the money to your friend ​, as it will result in more money for you at the end of the year.  

Answer 1

a), If you invest $49 in bank instead.

Future Value in 1 year = Invested amount*(1+Interest rate)

Future Value in 1 year = $49*(1+0.061)

Future Value in 1 year = $51.99

b). If you pay bank $52 in one year

Borrowed amount = Repayment amount/(1+Interest rate)

Borrowed amount = $52/(1+0.061)

Borrowed amount toady = $49.01

c). I should lend the money to the friend as he will pay $52 in one year while bank will pay $51.99.

Thus, lending money to friend results in higher value at year end.

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