Question

Question 1: You have $40,000 to spend at the beginning of this year and $50,000 at the beginning of next year. By lending the $40,000 out at the beginning of the year at 5% (simple) interest rate, how much can you spend at the beginning of the next year? Suppose you will receive $50,000 next year, but would like to be able to spend the full amount this year ($90,000). What is the maximum amount of money you can burrow this year at an interest rate of 6% and still be able to repay this loan? Draw a chart depicting the relationship in which you can spend this money. Hint: Place the maximum amount you can spend this year at the extreme point of the X axis and the same as it relates to what you can spend next year on the Yaxis.

Answer 1

solution: - page-1 * from the data - 3) Amount available to spend at the 1 beginning of this year = $40,000. =Amount available after 1 year +40.000'+ 40,000X0.05)$;.. . -(40,000 + 2,000)$ = $42,000 Now, Maximum amount that I can spend the next year = 42,000 +50,000 = $72,000 -> suppose I receive $50,000 at the beginning of the next year - But, would like to spend the full amount at the beginning of this year (90,000) =) Maximum amount of money that I can borrow . this year and still be able to repay the loan

page-2 50,000 (1+0.06) - $47170 1. Maximum amount that I can spend this year = 40,000 +47,170 - $87,170 . ... Relationship between what you can spend this year vs. what you can spend next year is- (1-21069xx - y x = maximum amount of money we can spend - this year y=maximum amount of money we can spend the next year. --- » (1.210691)x=y - --- F Maximum amount of availabe at the og oppure burunisaa 87,170 Maximum amount available at the beginning of this year. x .