Question

In: Finance

An investment will pay $292,600 at the end of next year for an investment of $190,000...

An investment will pay $292,600 at the end of next year for an investment of $190,000 at the start of the year. If the market interest rate is ​10% over the same​ period, should this investment be​ made?

A. ​Yes, because the investment will yield $75,240 more than putting the money in a bank.

B. ​No, because the investment will yield $83,600 less than putting the money in a bank.

C. ​Yes, because the investment will yield $66,880 more than putting the money in a bank.

D. ​Yes, because the investment will yield $83,600 more than putting the money in a bank.

Solutions

Expert Solution

Next year pay when invested at market interets rate = Present value (1 + r)^n

Next year pay when invested at market interets rate = 190,000 (1 + 0.1)^1

Next year pay when invested at market interets rate = 209,000

Difference = 292,600 - 209,000 = 83,600

D. ​Yes, because the investment will yield $83,600 more than putting the money in a bank.

jeff jeffy answered 2 years ago
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