A friend asks to borrow $49 from you and in return will pay you $52 in one year.

Question

A friend asks to borrow $49 from you and in return will pay you $52 in one year. If your bank is offering a 5.6% interest rate on deposits and loans: a. How much would you have in one year if you deposited the $49 instead? b. How much money could you borrow today if you pay the bank $52 in one year? c. Should you loan the money to your friend or deposit it in the bank? a. How much would you have in one year if you deposited the $49 instead? If you deposit the money in the bank today you will have $ [ ] in one year. (Round to the nearest cent.) b. How much money could you borrow today if you pay the bank $52 in one year? You will be able to borrow $ [ ] today. (Round to the nearest cent.) c. Should you loan the money to your friend or deposit it in the bank? (Select from the drop-down menu.) From a financial perspective, you should as it will result in more money for you at the end of the year.

Explanation / Answer

Ater one year my deposit value will be "loan amount*(1+bank interest rate)" i.e. $49×(1+5.6%) = $51.74

If i pay $52 to the bank in one year, i could borrow $49.24 [$52÷(1+5.6%)] today.

I should give loan to the friend. As he giving $52 in on year with $49 itself.

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