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A small business owner visits her bank to ask for a loan. Theowner states that...

A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $900 per month for the next two years and then $1,800 per month for three years after that. If the bank is charging customers 8.5 percent APR, how much would it be willing to lend the business owner? (Round your answer to two decimal places.)

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Expert Solution

We need to find the present value of the future repayments.

Monthly interest rate, r = 8.5%/12 = 0.007083333333

First, let's find the present value of the first two years of payment.

PMT = 900

n = 2 * 12 = 24

r = 0.007083333333

Now, we will find the present value of the next three years of payment

PMT = 1,800

r = 0.007083333333

n = 3 * 12 = 36

The will be willing to lend (19,799.5080376376 + 48,135.1126383916) = $67,934.6206760292

Answer: $67,934.62

jeff jeffy answered 2 years ago
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