Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Salvatore has the opportunity to invest in a scheme which will pay
$5,000
at the end of each of the next 5 years. He must invest
$10,000
at the start of the first year and an additional
$10,000
at the end of the first year. What is the present value of this investment if the interest rate is
3%?
Expert Solution
Step 1
Present value means the current value of money of some money in the future.
PV factor =
where r= rate of return
n= number of periods
This is based on the concept that amount received today worth more than if the same amount was received at the future.
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