You Need to Borrow $2,000 Quickly, and the Local Pawn

question 52

Multiple Choice

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year.
Suppose that the pawn shop's cost of funds is 12%, compounded monthly. From its viewpoint, what
Is the NPV of this deal?

• A) $44.11
• B) $111.01
• C) $226.17
• D) $261.37
• E) $292.01

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Definitions:

Rationalization

A defense mechanism where controversial behaviors or feelings are justified and explained in a seemingly rational or logical manner to avoid the true explanation.

Miserliness

An excessive desire to save money or spend as little as possible; extreme parsimony or stinginess.

Rationalization

A coping technique where disputable actions or emotions are rationalized in an apparently logical way to evade the actual reason behind them.

Financial Aid

Any form of funding that assists students in paying for their education, typically coming from various sources such as scholarships, grants, and loans.