You must choose between two passive investments.
Investment A requires an initial investment of $50,000 but will return $71,000 in three years.
Investment B requires an initial investment of $45,000 but will return $60,000 in two years.
You choose a discount rate of 10% to make your decision.
What is the present value of each investment?© BrainMass Inc. brainmass.com October 25, 2018, 6:37 am ad1c9bdddf
The question is asking how much you would have to invest at 10% interest to receive the given payoffs in the given number of years.
The formula for the future value of an ...
This solution give the the formula for the present value of an investment and gives two examples of how to apply it.
Present Value of Bond Investments
1.) A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5% paid annually. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond's PV?
2.) A 10-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 5.5% (2.75% of face value every six months). The semiannually compounded interest rate is 5.2% (a six-month discount rate of 5.2/2 = 2.6%).
What is the present value of the bond?View Full Posting Details