SOLUTION: a debtor owes 2200 due at the end of 2 years. he asks his creditors for the privilege of paying the debt immediately. at what simple interest rate 5% or 6% would the creditor prefe

Question 317406: a debtor owes 2200 due at the end of 2 years. he asks his creditors for the privilege of paying the debt immediately. at what simple interest rate 5% or 6% would the creditor prefer to compute the required present value , and how much would he gain by the better choice?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
The present value of $2200 at 6% simple interest rate per year for 2 years would be $2200 divided by 1.12 = 1964.285714

The present value of $2200 at 5% simple interest rate per year for 2 years would be $2200 divided by 1.10 = 2000.

The lender gets more money in present value dollars at the lower interest rate.

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