An investment pays $2,000 every second year for 20 years (a total of 10 payments).Your opportunity cost is 8% compounded semi-annually.The present value of this investment is
A) $9,322.00.
B) $9,666.46.
C) $13,323.85.
D) $19,636.29.

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the investment is $9,322.00. This is calculated by using the formula for the present value of an annuity, which is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the payment amountr is the interest raten is the number of paymentsIn this case, the PMT is $2,000, the r is 8% compounded semi-annually, and the n is 10. Plugging these values into the formula, we get:PV = 2,000 * [1 - (1 + 0.08/2)^-10] / (0.08/2)= 2,000 * [1 - (1.04)^-10] / 0.04= 2,000 * [1 - 0.58349] / 0.04= 2,000 * 0.41651 / 0.04= 9,322.00

An Investment Pays $2,000 Every Second Year for 20 Years