SOLUTION: Barry & Steve are good friend. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve
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Question 140930: Barry & Steve are good friend. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve gives him the $1,600 for the computer today.
Steve figures that there's an interest rate of 6% if he were to put the money in a bank instead of lending it to Barry.
Assuming that there is no rick of Barry paying the $2,000 when he says he will, should Steve go though with the loan or should he put his money in the bank?
Using the formulas for compound interest and simple interest. FV= P (1+R)t
and PV= FV
-----
(1+R)t
I am unsure how to get the answers using these formulas. I am lost!! Please help. Answer by vleith(2983) (Show Source):
You can put this solution on YOUR website! Given :
PV = 1600. R = 0.06 and t = 5.
Steve would get an additional $141 if he left the money in a bank. That amounts to $28 per year. What is your friendship worth?
For $~30 bucks a year, I would forgo the extra money to be a 'good friend'. What would you do?
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