Jason has a loan that requires a single payment of $5,200 at the end of 3...
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Homework Answers
Answer:
Present value of the future cash flows = Future cash flows x Present value factor (6 years, 3%)*
Present value of the future cash flows = $5,200 x 0.83748**
Present value of the future cash flows = $4,355
Hence, Jason should borrow $4,355 that requires a single payment of $5,200 at the end of 3 years
.
Notes:
* Given that, compounded semi-annually. So that, Interest rate for half-year = 6%/2 = 3% and Number of times compounded = 3 years x 2 times = 6 times. Hence, present value factor taken at 3% for 6 years.
** Present value factor taken from 'Present values table'.
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