Project #40080 - Finance Investing & Lending - 2 Questions

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Background Information For Questions Below

In the real world, people often face higher rates when they borrow than when they lend. Assume my bank account pays me 5%, but my bank charges me 10% for any money I borrow.

 

Question 1

I am offered a loan to buy a car. The loan company (not my bank) says they will give me $12,000 now, and require me to make a single payment of $36,000 in ten years.

Do I take the loan?

What is the least amount the loan company should lend me today if they expect me to pay back $36,000 in ten years?

 

Question 2

I am offered an opportunity to buy a share in a donut business for $7,000. Donut demand is very stable and so investments in such businesses are practically risk-free. My share of the profits is going to be $1,000 per year at the end of each of the next ten years.

What is the most I am willing to pay for the share?

Should I buy the share?

Subject Business
Due By (Pacific Time) 09/15/2014 06:00 pm
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