Davey has the opportunity to buy an investment that pays $500 at the end of each of the next two years. If interest rates are 6.5%, what is the maximum price that Davey should pay for this investment?

Question

Quizplus · Accepted Answer

The present value of the investment is $500/(1+0.065) + $500/(1+0.065)^2 = $910.31. Therefore, the maximum price that Davey should pay for this investment is $910.31.

Davey Has the Opportunity to Buy an Investment That Pays