Today you lent money to a friend. They will pay you back withtwo payments. One...

Today you lent money to a friend. They will pay you back with two payments. One year from now they will pay you $100. Three years from today they will pay you $500. You charged them a periodic annual interest rate of 4%. Today you lent them $________________ ( Round to the nearest penny.)

Expert Solution

Mony lent = Present Value of the repayment at the peroidic interest rate

= $ 100 * ( 1 / 1.04 ) + $ 500 * ( 1 / 1.04 )³

= $ 100 * 0.9615 + $ 500 * 0.889

= $ 540.65 Answer

The mony lent today is $ 540.65.

jeff jeffy answered 2 years ago

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