A friend asks you for a loan of $1,000 and offers to pay you back at the rate of $90 per month for 12 months.
a. Using an annual interest rate of 10%, find the net present value (to you) of loaning your friend the money. Repeat, using an interest rate of 20%.
b. Find an interest rate that gives a net present value of 0. The interest rate for which NPV = 0 is often called the internal rate of return.