Question

You have been offered an investment that will pay you $10,000 in 10 years. You think a 7% annual rate compounded annually is an appropriate rate of return or interest rate for this investment. What is the most you would be willing to pay for this investment today based on this information

Answer 1

$5083.49

Step-by-step explanation:

Given: future value =$ 10,000

present value = future value/(1+r)^t

= 10000/(1+0.07)^10

= $5083.49

the most you would be willing to pay for this investment today based on this information =$5083.49

Answer 2

Present value = $5,803.50 (Approx)

Step-by-step explanation:

Given:

Future value = $10,000

Number of year = 10

Rate of return = 7% = 0.07

Find:

Present value = ?

Computation:

`Present\ value = (Future\ value)/((1+Rate\ of\ return)^(Number\ of\ year)) \\\\Present\ value = (10,000)/((1+0.07)^(10)) \\\\Present\ value = (10,000)/(1.96715136) \\\\Present\ value = 5,083.49`

Present value = $5,803.50 (Approx)