A friend asks to borrow $45 from you and in return will pay you $48 in one year. If your bank is offering a 5.7% interest rate on deposits and loans: a. How much would you have in one year if you deposited the $45 instead? b. How much money could you borrow today if you pay the bank $48 in one year? c. Should you loan the money to your friend or deposit it in the bank? a. How much would you have in one year if you deposited the $45 instead? If you deposit the money in the bank today you will have $ in one year. (Round to the nearest cent.) b. How much money could you borrow today if you pay the bank $48 in one year? You will be able to borrow $ today. (Round to the nearest cent.) c. Should you loan the money to your friend or deposit it in the bank? (Select from the drop-down menu.) From a financial perspective, you should as it will result in more money for you at the end of the year.
A friend asks to borrow $45 from you and in return will pay you $48 in one year. If your bank is offering a 5.7% interest rate on deposits and loans: a. How much would you have in one year if you deposited the $45 instead? b. How much money could you borrow today if you pay the bank $48 in one year? c. Should you loan the money to your friend or deposit it in the bank? a. How much would you have in one year if you deposited the $45 instead? If you deposit the money in the bank today you will have $ in one year. (Round to the nearest cent.) b. How much money could you borrow today if you pay the bank $48 in one year? You will be able to borrow $ today. (Round to the nearest cent.) c. Should you loan the money to your friend or deposit it in the bank? (Select from the drop-down menu.) From a financial perspective, you should as it will result in more money for you at the end of the year.
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 2STP
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Transcribed Image Text:A friend asks to borrow $45 from you and in return will pay you $48 in one year. If your bank is offering a 5.7% interest rate on deposits and loans:
a. How much would you have in one year if you deposited the $45 instead?
b. How much money could you borrow today if you pay the bank $48 in one year?
c. Should you loan the money to your friend or deposit it in the bank?
a. How much would you have in one year if you deposited the $45 instead?
If you deposit the money in the bank today you will have
in one year. (Round to the nearest cent.)
b. How much money could you borrow today if you pay the bank $48 in one year?
You will be able to borrow $ today. (Round to the nearest cent.)
c. Should you loan the money to your friend or deposit it in the bank? (Select from the drop-down menu.)
From a financial perspective, you should
as it will result in more money for you at the end of the year.
Expert Solution
Step 1 Analysis
If you deposit amount in a bank, you will reccive interest on such depoisit. Hence your money after one year will be the aggregate of you deposit and interest earned on such deposit. Use future value or compound value formula
A=P(1+i)
A= Amount reccive after year 1/Future value
P= Principal you have deposit today/Parsent value
i= rate of interest
If you lend money to your friend , you will get some extra money apart from money you give lend that will be your return. Return will be comparable to interest.
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