You have just graduated, are dead broke, but would still like to buy a new car so
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Question:
(a) If your aunt accepted your proposal, how much would she be willing to lend you today?
(b) How much would your aunt have in four (4) years if she chooses not to lend you the money?
(c) How much would your aunt have in four (4) years if she chooses to lend you the money?
(d) Based on your calculations in parts (b) and (c), you believe your aunt should be indifferent between lending you the money or putting the money in the bank. Discuss whether she would agree with your assessment.
(e) Suppose your aunt proposes to make you indifferent between borrowing from her or borrowing from the bank instead. How much would she be willing to lend you today?
(f) You and your aunt eventually agree to an interest rate of 4%. Explain whether you win, whether your aunt wins, and how such an outcome can be possible.
Related Book For
Concepts In Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher
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