Question

Problem 6.05 Mark Harris borrowed some money from his friend and promised to repay him $1,250, $1,340, $1,490, $1,560, and $1,560 over the next five years. If the friend normally discounts investment cash flows at 8.0 percent annually, how much did Mark borrow? (Round answer to 2 decimal places, e.g. 15.25. Do not round factor values.) Present value

Answer 1

Amount borrowed= the present values of the promised repayments at end of Years 1 to 5 --all discounted at 8% p.a.

ie. (1250/1.08^1)+(1340/1.08^2)+(1490/1.08^3)+(1560/1.08^4)+(1560/1.08^5)=

5697.41

Alternately,
1	2	3=1/1.08^n	4=2*3
Year	Repayments	PV F at 8%	PV at 8%
1	1250	0.9259259	1157.41
2	1340	0.8573388	1148.83
3	1490	0.7938322	1182.81
4	1560	0.7350299	1146.65
5	1560	0.6805832	1061.71
	PV of amt. Borrowed=		5697.41