Your friend in problem  comes up with another way to pay off the $300 he borrowed from you. He has a reputable friend who is going to pay our friend $400 in 4 year(to cover a loan he had made to him earlier).  Your friend would just have this reputable person pay you the $400 instead in order to liquidate the $300 loan he made from you.  Since you know this is an honest ad reputable person, you would consider this deal if you earned at least 7% per year on the deal.

 

Fv=PV

$400=300 (l+t)^4

(l+t)^4=400/300 =1.3333333

(l+t)=1.3333333^0.25=1.07457

R=7.46%

What kind of return would you be earning in this new deal?