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13 March, 09:08

Jeremy Fenloch borrowed some money from his friend and promised to repay him the amounts of $1,225, $1,350, $1,500, $1,600, and $1,600 over the next five years. If the friend normally discounts investments at 8 percent annually, how much did Jeremy borrow?

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  1. 13 March, 10:42
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    PV formula=Payment * PVF at 8%

    So,

    Year 1: PV=1225; PVF=0.925926; PV = 1225*0.925926=1134.26

    Year 2: PV=1350; PVF=0.857339; PV = 1350*0.857339=1157.41

    Year 3: PV=1500; PVF=0.793832; PV = 1500*0.857339=1190.75

    Year 4: PV=1600; PVF=0.73503; PV = 1600*0.73503=1176.05

    Year 5: PV=1600; PVF=0.680583; PV = 1600*0.0.680583=1088.93

    If we add everything, it will amount into 5747.40 = amount of borrowing
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