To raise money for a new business a man asks you to loan him

To raise money for a new business a man asks you to loan him some money. He offers to pay you $3000 at the end of four years. How much should you give him now if you want 12% interest per year on your money? $1800.15 $1906.50 $2101.50 $1721.18

Solution

We would apply compound interest formula:

Amount after 4 yrs = Principal( 1+ r/100)^n

where n is no. of years ; r= rate of interest

3000 = P[ 1+ 0.12]^4

3000 = P*1.5735

Principal he needs to give = 3000/1.57 = $ 1906.55

Option 2