Scenario: An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.
-Refer to the scenario above.If the investor plans to invest a sum of $4,000,the net present value of Option C is ________.

Question

Quizplus · Accepted Answer

The net present value of Option C is $516.80. This is calculated by taking the present value of the future cash flow, which is $9,000, and subtracting the initial investment, which is $4,000. The present value of the future cash flow is calculated using the formula: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years. In this case, the annual interest rate is 9% and the number of years is 8, so the present value of the future cash flow is $9,000 / (1 + 0.09)^8 = $5,116.80. Subtracting the initial investment of $4,000 gives a net present value of $516.80.

Scenario: an Investor Is Considering Three Different Investment Options