Question

Jacob's friend, Albert, borrows today with a promise to repay $20,542 in 11 years. If Jacob could earn 9 percent annually on the any investment he makes today, how much would he be willing to lend Albert today? Hint: How much can Jacob lend Albert today (PV?) so that he can achieve his expected 9% return (I/Y) when Albert pays back the $20,542 (FV) 11 years from now (N) ?

Answer 1

Jacob would be willing to lend Albert approximately $8,434.64 today.

Step-by-step explanation:

To calculate how much Jacob would be willing to lend Albert today, we can use the present value (PV) formula. PV = FV / (1 + r)^n, where FV is the future value ($20,542), r is the annual interest rate (0.09), and n is the number of years (11). Plugging in these values into the formula, we can find the present value (PV).

PV = 20542 / (1 + 0.09)^11

Using a calculator, the present value (PV) comes out to be approximately $8,434.64.

Therefore, Jacob would be willing to lend Albert approximately $8,434.64 today.