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.
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.
If you need any clarification, you can ask in comments.
If you like my answer, then please up-vote as it will be motivating
Get Answers For Free
Most questions answered within 1 hours.