Question

Derek's friend, Jackson, is asking to borrow today with a promise to repay $7,418.87 in four years. If Derek could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Jackson today

Answer 1

The amount Jackson would be willing to lend is $6,000.

How much would Jackson be willing to lend?

In order to determine the  amount Jackson would be willing to lend, the present value of the amount Dereck would repay in 4 years. Present value is the sum of discounted cash flows.

Present value = $7,418.87 / (1.0545^4) = $6,000

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