4 RT is about to loan his granddaughter Cynthia S20000 for 1

4. RT is about to loan his granddaughter Cynthia S20,000 for 1 year. RT\'s TVOM, based upon his current investment earnings, is 10%, and he has no desire to loan money for a lower rate. Cynthia is willing to pay up to S2,200 interest for the l-year loan. (a) Should they be able to successfully negotiate the terms of this load? (b) If so, what range of paybacks (payment) would be mutually satisfactory? (c) Cynthia realized that her currently earnings on investments dropped to 8% and she wants to use the earnings to pay off the loan (please, assume she will invest the whole amount borrowed). In comparison to the previous situation, has anything changed with respect to the terms of the load? If yes, what has changed?

Solution

Solution:

(a) Yes.

(b) The acceptable range is from $22,000 to $22,200. ( or )

If Interest is considered then, the acceptable range is from $2,000* to $2,200**.

*($20,000 × 10.00%)

**($20,000 × 11.00%)

(c) Yes, now they cannot reach an agreement / cannot negotiate the term of the load.

Cynthia can pay only up to $1,600 ($20,000 × 8.00%) ,

while RT wants to receive at least $2,000 ($20,000 × 10.00%).