Question

Your brother has asked you for a loan and has promised to pay you $9,800 at the end of three years. If you normally invest to earn 6.40 percent per year, how much will you be willing to lend to your brother if you view this purely as a financial transaction (i.e., you don’t give your brother a special deal)? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)

Answer 1

PV= $8235.817383

Step-by-step explanation:

Giving the following information:

Your brother has asked you for a loan and has promised to pay you $9,800 at the end of three years. You normally invest to earn 6.40 percent per year.

FV= $9,800

i= 0.064

n= 3

Present Value=?

We need to use the present value formula:

PV= FV/(1+i)^n

PV= 9800/(1.064^3)= $8235.817383