It is just a little more than one year since you graduated from Newbury College. Like most Newbury grads, you started work on the Monday following graduation. Your company, in recognition of a year of excellent work as a financial analyst, has awarded you a bonus check of $3,000 (after taxes).

At some point during the year you made a promise to yourself, "If I ever get enough cash, I am going to buy myself a fancy big-screen TV." Without question, you are going to use some of that money to buy the TV. The question is, "What to do with the rest?"

Your parents have strongly suggested you put the remaining money in a savings account. The savings account will pay 5% interest in one year.

At a raging party at the end of senior year, you promised your best friend, Chris, that you would invest in Chris' start-up company. Chris has been calling you about this promise every week since graduation. Over 50 calls so far. Chris guarantees a 9% return in one year. However, there is a minimum investment of $2,000. You feel obligated to fulfill your pledge.

There is a fund set up by a Newbury College alumnus that would lend you the money to invest in a fellow alum's company at a discounted rate of 12%.

You go to Best Buy and find a TV that fulfills all of your desires, more or less. It costs $1,300 (total, including sales tax). You go ahead and buy the TV.

How much do you have to either put in the bank (as your parents insist) or invest in Chris's company? 3000-1300 = 1,700

What would be the return at the end of the year if you put it in a savings account? 3000*

What would a $2,000 investment in Chris' company return at the end of the year?

How much do you need to borrow to invest $2,000 in Chris' company after buying the TV?

How much will you need to return to the bank if you borrowed that money?

Are you able to prove your parents wrong? Does it make more sense to invest in Chris' company, even if you have to borrow the money to do it?