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Class 10 > Suppose that I am trying to borrow money from you to...
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Suppose that I am trying to borrow money from you to finance my business, and I promise to repay you Rs. 1,000 quarterly for two years. If your opportunity cost of funds is 10%, how much are you willing to lend me?

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Rs. 3636.36.
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Masters of Management Studies in Finance Specialization

Cost 10%(r) = since quarterly then i divide by 4 ( as 4 quarters). Thus, 10%/4 = 2.5%. as interest will be compounded. Number of years(n) = 2, to multiply by 4. Hence 2*4 = 8 as 8 times the payments will be made in 2 years. annuity amount (A) = 1000 (assuming to be an ordinary annuity). PV of annuity...
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Cost 10%(r) = since quarterly then i divide by 4 ( as 4 quarters). Thus, 10%/4 = 2.5%. as interest will be compounded. Number of years(n) = 2, to multiply by 4. Hence 2*4 = 8 as 8 times the payments will be made in 2 years. annuity amount (A) = 1000 (assuming to be an ordinary annuity). PV of annuity = A*[(1+r)^n-1/r(1+r)^n] = Rs. 7170.1372. read less
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Rs. 1200.
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Rs. 7170.2.
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Cost 10%(r) = since quarterly then i divide by 4 ( as 4 quarters). Thus, 10%/4 = 2.5%. as interest will be compounded. Number of years(n) = 2, to multiply by 4. Hence 2*4 = 8 as 8 times the payments will be made in 2 years. annuity amount (A) = 1000 (assuming to be an ordinary annuity). PV of annuity...
read more
Cost 10%(r) = since quarterly then i divide by 4 ( as 4 quarters). Thus, 10%/4 = 2.5%. as interest will be compounded. Number of years(n) = 2, to multiply by 4. Hence 2*4 = 8 as 8 times the payments will be made in 2 years. annuity amount (A) = 1000 (assuming to be an ordinary annuity). PV of annuity = A*[(1+r)^n-1/r(1+r)^n] = Rs. 7170.1372 read less
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