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Calculating the present value of an investment

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?

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Solution Preview

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 ...

Solution Summary

This solution give the the formula for the present value of an investment and gives two examples of how to apply it.

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