Question

How much can Chase bank lend to a developer, who will repay the loan by selling four custom lots at $250,000.00 each, four years from now. Assume bank will lend at a nominal 12% per year, compounded quarterly? a) $635,500.00 b) $623,200.00 c) $523,600.00 d) $888,487.00

Answer 1

Total value received after 4 yrs = 250000 * 4 = 1000000

effective interest rate = (1+0.12/4)^4 -1

= (1+0.03)^4 -1

= 1.1255088 - 1

= 0.1255

P = F / (1+i)^t

Present worth of value received after 4 yrs = 1000000 / (1+0.1255)^4

= 1000000 / (1.1255)^4

= 623186.45

Answer is closest to option b. 623200

option b is correct answer

Mionr diff in answer value due to calculations being upto six decimal places