A Loan of $5000 Is Taken Out Today

A loan of $5000 is taken out today.It is due with interest at j₄ = 8% in 2 years.Instead,the borrower negotiates with the lender to replace this loan with a payment of $2500 in 1-year and another payment of $X in 3-years.If the lender can reinvest any payment at j₂ = 5%,what is the value of X?

A) $3038.93
B) $2493.59
C) $3581.68
D) $3395.34

Correct Answer:

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