What is the borrowing and the lending rate

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Question: Suppose that you are planning to enroll in a master's degree program two years in the future. Its cost will be the equivalent of $160,000 to enroll. You expect to have the following funds:

· From your current job, you can save $5,000 after one year and $7,000 after two years.

· You expect a year-end bonus of $10,000 after one year and $12,000 after two years.

· Your grandparents have saved money for your education in a tax-favored savings account, which will give you $18,000 after one year.

· Your parents offer you the choice of taking $50,000 at any time, but you will get that amount deducted from your inheritance. They are risk-averse investors and put money in ultrasafe government bonds that give 2 percent per year.

The borrowing and the lending rate at the bank is 4 percent per year, daily compounded. Approximating this by continuous compounding, how much money will you need to borrow when you start your master's degree education two years from today?

Reference no: EM131457822

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