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Sandhya Rusty smith lans to choose one of three investments.
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Sandhya
Rusty smith lans to choose one of three investments. invest A pays 2500 at the end of each year for three years. Investment B pays 8500 at the end of five years. Invest C pays 1000 at the end of each year for four years and pays 4000 at the end of the fifth year. Rusty requires a rate of return of 7 percent on each of these investments.
What is the present value of Investment A
What is the present value of Investment B
What is the present value of Investment C
Submitted:
4 years ago.
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Expert:
Sandhya
replied 4 years ago.
Rusty smith lans to choose one of three investments. invest A pays 2500 at the end of each year for three years. Investment B pays 8500 at the end of five years. Invest C pays 1000 at the end of each year for four years and pays 4000 at the end of the fifth year. Rusty requires a rate of return of 7 percent on each of these investments.
What is the present value of Investment A
Solution:
Present value = PMT*(1  (1+i)^n)/i
= 2500*(1(1+0.07)^3)/0.07 = $6,560.79
Answer: $6,560.79
What is the present value of Investment B
Solution:
Present value = PMT/(1+i)^n
= 8500/(1+0.07)^5 = $6060.38
Answer: $6060.38
What is the present value of Investment C
Present value = 1000*(1(1+0.07)^4)/0.07 +4000/(1+0.07)^5 = $6,239.16
Answer: $6,239.16
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Expert:
Sandhya
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