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? Round your answer to the nearest dollar.

Answer 1

Answer:

Explanation:

the minimun value is expressed by the present value of the investment using a 7% rate, lets recall the formula for finding present values:

$PV=FV*(1+i)^{-n}$

where, PV is present value, FV is the future value, and n is time elapsed. So applying to this problem we have:

$PV=10,000*(1+0.07)^{-10}$

$PV=5,083.49$

So the minimun value which is profitable to pay is 5,083.49 today, in that sense you will get a return on 7% compounded after 10 years