Your Friend Wants to Borrow $2,000 and Pay It Back

question 20

Multiple Choice

Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,080 in one year. The bank annual interest rate is 5%. Which of the following statements is TRUE?

• A)You will be financially worse off if you make the loan rather than deposit $2,000 in the bank.
• B)You will be financially better off if you make the loan rather than deposit $2,000 in the bank.
• C)The present value of $2,080 payable in one year with an interest rate of 5% is $1,904.76, which is less than the value of the $2,000 you have been asked to lend.
• D)None of the statements is true.

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