Question

Your brother-in-law offers you the opportunity to invest $15,000 in a project that he promises will return $17,000 at the end of the year. Because you have only $3,000 in cash, you will have to borrow $12,000 from your bank. The bank charges interest at 12 percent. After reflection, you decide not to accept the offer because you figure the net return would be only $15,560 ($17,000 less $1,440 of interest paid to the bank). When your brother-in-law asks why, you tell him that because the bank charges you 12 percent, it is ridiculous for him to expect you to invest in a risky project that returns less than 4 percent. Please comment. Is the offer that "ridiculous"?


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  • CreatedMarch 27, 2015
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