Answer to Question #303788 in Economics of Enterprise for Thitichot

Question

A person has made an arrangement to borrow $1,000 now and another $1,000 two years hence. The entire obligation is to be repaid at the end of four years. If the projected interest rates in years one, two, three, and four are 10%, 12%, 12%, and 14%, respectively, how much must this person repay as a lump-sum amount at the end of four years?

Answer 1

$F = (1000\times1.01\times1.12+ 1000)\times1.12\times1.14=2.850$