Suppose a friend wants to borrow $500 and offers to pay you back over the next five years by paying $100 at the end of two years, $200 at the end of three years, $150 at the end of four years, and $125 at the end of five years. You want to at least break even over the five years, and you could earn 7 percent interest on the money if you kept it. Should you make the loan? (Hint: Calculate the present discounted value of the payments. Show your work.)

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The Answer of Suppose a friend wants to borrow $500 and offers to pay you back over the next five years by paying $100 at the end of two years, $200 at the end of three years, $150 at the end of four years, and $125 at the end of five years. You want to at least break even over the five years, and you could earn 7 percent interest on the money if you kept it. Should you make the loan? (Hint: Calculate the present discounted value of the payments. Show your work.)

Suppose a Friend Wants to Borrow $500 and Offers to Pay