If your TVOM is 15 percent and your friends is 20 percent ca

If your TVOM is 15 percent and your friend’s is 20 percent, can the two of you work out mutually satisfactory terms for a 1-year $3,000 loan? Assume the lender has the money available and neither person wants to go outside their acceptable TVOM range. Be explicit about who is lending and what is the acceptable range of money paid back on the loan.

Solution

You will lend the money to your friend.

For 1 year - $3000 @ 15

If your friend lend you money $3000 @ 20% then you have to pay him by the year end a sum of $3600.

But if you lend money to your friend then $3000 @ 15%, total amount your friend will pay is $3450

So if your friend lend he will get more compare to you. But as its said no one can exceed their TVOM rate. So you can\'t exceed from TVOM 15%.

And on the other side your friend can take at less rate by maintaining your TVOM of 15%.

So you will lend @15% to your fridn and he will pay 3450 , will be th best.