Your friend has a trust fund that will pay him $100,000 at the end of 10 years.Your friend,however,wants his money today.He promises to sign his trust fund over to you if you give him some money today.You require a 20% interest rate on money you lend to friends.How much would you be willing to lend under these terms?

Question

Quizplus · Accepted Answer

To calculate the present value of the trust fund payment, we can use the formula:
Present value = Future value / (1 + interest rate)^n
Where n is the number of years until the payment is received.
Plugging in the values, we get:
Present value = 100,000 / (1 + 0.2)^10
Present value = $16,151. Therefore, you would be willing to lend up to $16,151 to your friend under these terms.

Your Friend Has a Trust Fund That Will Pay Him