Question

Terry's father loaned her $15,000 for college expenses. Terry agreed to repay the $15,000 in a lump sum 5 years after graduation. No interest was to be charged. Terry, who is now a senior, has the prospects of marrying a rather wealthy man and wishes to repay the loan on graduation day. Assuming that father can invest the money at 12% interest, how much should he be willing to accept on graduation day rather than waiting 5 years for his money

Answer 1

PV= $8,511.40

Step-by-step explanation:

Giving the following information:

Final value= 15,000

Number of years= 5 years

Interest rate= 12%

We need to calculate the present value of the $15,000. We will use the following formula:

FV= PV*(1+i)^n

Isolating PV:

PV= FV/(1+i)^n

PV= 15,000/1.12^5

PV= $8,511.40