Your brother-in-law wants to borrow $50,000 to start a new business selling T-sh

Question

Your brother-in-law wants to borrow $50,000 to start a new business selling T-shits online. Will each of the following events make you more or less likely to lend him the money? Give the appropriate reason for each answer money or risk of default). The interest rate on savings accounts goes up. This makes you likely to lend him the money because the time value of money has decreased. Risk of default has increased. Time value of money has increased. Risk of default has decreased. Your teenager wins a full scholarship to college. This makes you likely to lend him the money because the risk of default has decreased. Time value of money has increased. risk of default has increased. You discover that your brother-in-law has started a business before and failed. This makes you likely to land him the money because the time value of money has increased. risk of default is too high. Risk of default is too low. Time value of money has decreased.

Explanation / Answer

A. Less like and time value of money increases. Explanation - The increased savings rate allow you to invest elsewhere and earn a good return that is safer.

B. More Likely and time value of money has decreased. Explanation - You have freed up money that you were saving for your child's college. Now, you have it available to invest or lend.

C. Less Likely. Rate of default has increased. Explanation - Many people fail at business the first time. However, knowing this has happened means it could happen again and there is a higher risk of default.

D. Less likely. Risk of default is high and time value of money is low. During a recesion, inflation tends to rise that eats into the time value of money and risk of default on business is higher.

E. Less Likely. Time value of money has increased due to the alternative investment in the hot stock tip.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.