You could borrow $2,000 today from Bank A and repay the loan, with interest, by paying Bank A $2,170 one year from today. Or, you could borrow X dollars today from Bank B and repay the loan, with interest, by paying Bank B $2,712.50 one year from today. In order for the same interest rate to apply to the two loans, X =

Question

Quizplus · Accepted Answer

The interest rate for Bank A is ($2,170 - $2,000) / $2,000 = 8.5%. To find X for Bank B, solve $2,712.50 = X * (1 + 0.085), which gives X = $2,500.00.

You Could Borrow $2,000 Today from Bank a and Repay