An investment opportunity requires a payment of $620 for 12 years, starting a year from today. If required rate of return is 6.00 percent, what is the value of the investment to you today
An investment opportunity requires a payment of $620 for 12 years, starting a year from today. If required rate of return is 6.00 percent, what is the value of the investment to you today
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
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An investment opportunity requires a payment of $620 for 12 years, starting a year from today. If required rate of return is 6.00 percent, what is the value of the investment to you today?
Expert Solution
Step 1: Introduction
Present value :
The financial concept used to establish the current valuation of future cash flows or income is present value. It is based on the principle that, given the time value of cash, money obtained in future would be worth less than what was received today. To calculate present value, a discount rate is applied to future cash flows to account for the time value of money.
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