Question

In: Finance

You are thinking about investing $4,692 in your​ friend's landscaping business. Even though you know the...

You are thinking about investing $4,692 in your​ friend's landscaping business. Even though you know the investment is risky and you​ can't be​ sure, you expect your investment to be worth $5,738 next year. You notice that the rate for​ one-year Treasury bills is 1%. ​However, you feel that other investments of equal risk to your​ friend's landscape business offer an expected return of 8% for the year. What should you​ do?

Solutions

Expert Solution

Present value of the return = $5,738 / (1 + 8%)^1 = $5,312.96

The present value of the return is higher than the investment.
Thus, he should investing in his friend's landscaping business.

jeff jeffy answered 2 years ago
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