A company is considering an investment that will return $20,000 semiannually at the end of each semiannual period for 4 years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?
A)Not more than $ 63,398
B)Not more than $126,796
C)Not more than $ 80,000
D)Not more than $129,264
E)Not more than $160,000

Question

Quizplus · Accepted Answer

Present Value of an Annuity = Annuity * Interest Factor
Present Value of an Annuity = $20,000 * 6.4632 = $129,264
6.4632 is the interest factor on the Present Value of an Annuity table; n = 4; i = 10%

A Company Is Considering an Investment That Will Return $20,000