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Sandhya Rusty smith lans to choose one of three investments.

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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: 5 years ago.
Category: Homework
Expert:  Sandhya replied 5 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 replied 5 years ago.
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