An investor has the opportunity to invest at 20 per cent per year. Rather than receiving $20,000 in a years' time, which of the following sums would the investor prefer to have now?

Question

Quizplus · Accepted Answer

The present value (PV) of the future value (FV) of $20,000 in one year at a 20% interest rate can be calculated using the formula PV = FV / (1+r)^n, where r is the interest rate as a decimal (0.20), n is the number of periods (1), and ^ denotes exponentiation.

So, PV = $20,000 / (1+0.20)^1 = $16,666.67 (rounded to the nearest cent).

Therefore, the investor would prefer to have an amount greater than $16,666.67 now.

The only choice greater than this amount is C, $16,800. Therefore, the best choice is C.

An Investor Has the Opportunity to Invest at 20 Per