Question

Glenn wants to borrow money from Joe and promises repay $10,000 in 2 years. What is the most Joe would be willing to lend if his required return is 20 percent?

Answer 1

Joe has a required return of 20%. He will be willing to
lend an amount that grows to 10000 in 2 years at an interest
rate of 20%.
Future Value = Present Value*((1+r)^t)
where r is the interest rate that is 20% and t is the time period in years that is 2.
Future value	10000
10000	Present value*((1.20)^2)
10000	Present value*(1.44)
Present value	10000/(1.44)
Present value	6944.44
If Joe lends $6944.44 to Glenn, and she returns $10000 in 2
years that will satisfy Joe's required return of 20%.
Joe cannot lend more than $6944.44 because then he will
need a bigger amount than $10000 to satisfy his required return of 20%.
The most Joe would be willing to lend is $6944.44.