Question

Chris Anderson borrowed some money from his friend and promised to repay him $1,300, $1,380, $1,540, $1,600, and $1,600 over the next five years. If the friend normally discounts investment cash flows at 10.0 percent annually, how much did Chris borrow?

Answer 1

Chris borrowed amount today is equal to Present value of all repayment over 5 years at discount interest rate.

Please refer to below spreadsheet for calculation and answer -

17 Year PVF( 10% Present Value Repayment $1,300.00 $1,380.00 $ 1,540.00 $ 1,600.00 $ 1,600.00 0.9$ 0.82645 $ 0.75131$ 0.68301$ 0.6202 1,181.82 1,140.50 1,157.02 1,092.82 993.47 5,565.63 4 4 Borrowed Amount (Total Present Value 10

Formula reference -

Function Library Defined Names Formula Auditing 2 Year Repayment PVE( 10% Present Value G3 H3 G4 H4 1300 1380 1540 1600 1600 1/1.1AF4 1/1.1AF5 -1/1.1AF6 l-1/1.1AF7 4 G6*H6 Borrowed Amount (Total Present Value -SUM (I3:17

Thus, Chirs borrowed amount is $ 5,565.63