Question
Your best friend is taking out a 4-year loan from you today. To repay you, he will pay $5,000 in Year 1, $8,000 in Year
Your best friend is taking out a 4-year loan from you today. To repay you, he will pay $5,000 in Year 1, $8,000 in Year 2, plus annual fixed cash flows of $10,000 each in Year 3 and Year 4. The appropriate annual interest rate for Year 1 and Year 2 is 3% compounding annually. The appropriate annual interest rate for Year 3 and Year 4 is 5% compounding annually. If you are being fair to your best friend, how much are you lending to him today? (rounded to the nearest $)
X A: $34,650 X B: $30,820 X C: $28,884 X D: $29,922 X E: $30,431
Plesae show the correct step-by-step working and proper explanation. Thanks.
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