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eduard
3 years ago
9

A friend asks to borrow $635.52 today and promises to repay you $1,000 with interest compounded annually at 12%. How many years

(compounding periods) will pass before you receive the payment
Business
1 answer:
yanalaym [24]3 years ago
8 0

Answer:

4 years

Explanation:

We can calculate the years (compounding periods that) will pass before you receive the payment by calculating the PV factor at 12% as follows.

DATA

Amount borrowed = $635.52

future amount = $1,000

Interest rate = 12%

Time period (n) = ?

Solution

Amount borrowed = future amount x Present value factor (12%, n)

$635.52 = $1,000 x PV factor(12%, n)

0.63552 = PV factor(12%, n)

If you see in a discount table yu wi see 0.63552 in the fourth row of 12% rate that means it will take 4 years to receive the payment.

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