Posted by RACHELLE on .
Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says he will pay Steve $2000.00 in five years if Steve gives him $1600.00 for the computer today. Steve figures that there is an interest rate of 6% if he were to put the money in a bank instead of lending it to Barry. Assuming that there is no risk of Barry not paying the $2000.00 when he says he will, should Steve go through with the loan or should he put his money in the bank? Explain the answer.
At 6% interest, Steve would earn $96 a year if he put the $1600 in the bank.
0.06 * 1600 = 96
What do you think Steve should do?
He should put the money in the bank.So that he doesnot hafe to make aloan later.
Actually he could earn $2141+ if he put the money in the the bank for 5 years and he would have immediate access to it if he needed it.