Your grandmother has promised you $1 000 when you graduate in 1 year.At a 6% annual interest rate,you can borrow $943.40 and pay it back with your grandmother's gift at graduation.

Question

Quizplus · Accepted Answer

Using present value formula, we can calculate the present value of $1,000 to be received in 1 year at 6% interest rate:

PV = FV / (1 + r)^n
PV = 1,000 / (1 + 0.06)^1
PV = 943.40

Therefore, if you borrow $943.40 and pay it back in 1 year with your grandmother's gift of $1,000, you would have exactly enough to pay off the loan plus interest.

Your Grandmother Has Promised You $1 000 When You Graduate