Richard is promised an amount equal to $10,000 in two years if he keeps his investment with his family's restaurant. He is offered an annual interest rate of 5%. What is the Net Present Value (NPV) of Richard's investment?

Question

Quizplus · Accepted Answer

The NPV of Richard's investment is $9,070. Key Takeaway: To calculate the NPV of an investment with a known return date and known interest rates over a period of time, the following formula is used: P = A (1 + i)^-n. An NPV provides an estimate of how much money is needed to invest currently in order to gain a set amount in the future.

Richard Is Promised an Amount Equal to $10,000 in Two