Roger has the opportunity to invest $100,000 in two different assets. The investment in Asset #1 will have a present value of $120,000. The investment in Asset #2 is expected to have a future value of
$140,000 in four years. If the market interest rate is 5 percent a year, which one would be the better
Investment?

Question

Quizplus · Accepted Answer

To compare the two investments, we need to find the present value of Asset #2. Using the formula for present value of a single amount: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

PV = $140,000 / (1 + 0.05)^4 = $113,350.60

Therefore, the present value of Asset #2 is $113,350.60, which is less than the present value of Asset #1 ($120,000). Therefore, Asset #1 is the better investment.

Roger Has the Opportunity to Invest $100,000 in Two Different