Owen expects to receive $20,000 at the end of next year from a trust fund.If a bank loans money at an interest rate of 7.5%,how much money can he borrow from the bank on the basis of this information?
A)$11,428
B)$15,000
C)$18,605
D)$21,500

Question

Quizplus · Accepted Answer

We can use the present value formula to determine how much money Owen can borrow from the bank.

PV = FV / (1 + r)^(n)

where PV is the present value (amount that Owen can borrow), FV is the future value ($20,000), r is the interest rate (7.5% or 0.075), and n is the number of periods (1 year).

Plugging in the values, we get:

PV = $20,000 / (1 + 0.075)^1
PV = $18,605.04

Therefore, Owen can borrow up to $18,605.04 from the bank, which is closest to choice C ($18,605).

Owen Expects to Receive $20,000 at the End of Next