Question

If you owe $35,000 payable at the end of eight years, what amount should your creditor accept in payment immediately if she could earn 13 percent on her money?

Short answer

The creditor should accept $13,165.60 now.

Step-by-step solution

Identification of the required information

Future value (FV) = $35,000

Periods (n) = 8

Interest Rate (i) = 13%

Immediate payment to be accepted by the creditor (PV)

$$\begin{gathered} PV=FV\times {\left(1+i\right)}^{-n} \\ =\$35,000\times {\left(1+13\%\right)}^{-8} \\ =\$13,165.60 \end{gathered}$$