You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?
A) $ 2,738
B) $ 2,985
C) $15,347
D) $ 6,000

Question

Quizplus · Accepted Answer

This is a problem of determining the present value of an annuity due. Using a financial calculator or excel, the present value of the annuity can be found to be $2,985. If the investment cost more than $2,985, then the rate of return would be less than 9% which is not desirable. Therefore, the maximum amount that should be invested in this project is $2,985.

You Have Been Offered a Project Paying $300 at the Beginning