Your friend's father offers to lend you $20,000 to buy a new car

Finance Nov 03, 2020

Your friend's father offers to lend you $20,000 to buy a new car. You would have to repay him $30,000, which includes interest plus the return of the $20,000, two years later. What interest rate would he be charging you? 22.47% 22.92% 23.38% 23.85% 24.32%

Expert Solution

The overall rate of return= (amount at the end of last year-amount at beginning)/amount at beginning,)

= (30,000-20,000)/20,000

= 50%

Annualised compounded return per year will be

= ((50/2)^1/2)/2= 22.47%

Correct answer is option (A) 22.47%

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