If an investment requires payment of $5,000 now and promises to return a single payout of $15,000 one year from now, the net present value of the investment at an interest rate of 10% is approximately
A)$3,636.
B)$8,636.
C)$10,000.
D)$13,636.

Question

Quizplus · Accepted Answer

To find the net present value, we need to discount the future payout back to the present using the given interest rate. The formula for net present value is:

Net Present Value = Future Value / (1 + Interest Rate)^N - Initial Investment

Plugging in the values given, we get:

Net Present Value = 15,000 / (1 + 0.1)^1 - 5,000
                 = 15,000 / (1.1) - 5,000
                 = 13,636.36 - 5,000
                 = 8,636.36

Therefore, the net present value of the investment at an interest rate of 10% is approximately $8,636, and the best choice is B.

If an Investment Requires Payment of $5,000 Now and Promises