Question

You are thinking about investing $ 4 comma 650 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 comma 637 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 9 % for the year. What should you​ do?

Answer 1

Explanation:

The computation of present value of the return is shown below:-

Present value of the return = Expected return ÷ (1 + r)^n

= $5,637 ÷ (1 + 0.09)^n

= $5,637 ÷ (1.09)^1

= $5,637 ÷ 1.09

= $5,171.56

Since as we can see the present value is more than the investing amount. So, the investment can be done in this project.