You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?
A) $ 2,738.70
B) $ 2,985.18
C) $15,347.70
D) $ 6,000.00

Question

Quizplus · Accepted Answer

The maximum amount to invest is the present value of the annuity. The present value of an annuity formula is used: PV = PMT × [(1 - (1 + r)^-n) / r] × (1 + r). Here, PMT = $300, r = 0.09, n = 20. Calculating gives PV ≈ $2,985.18.

You Have Been Offered a Project Paying $300 at the Beginning