An investment product promises to pay $42,000 at the end of ten years. If an investor feels this investment should produce a rate of return of 12 percent, compounded annually, what's the most the investor should be willing to pay for the investment?
A)$ 15,146.
B)$ 13,523.
C)$ 42,000.
D)$130,446.$42,000 x .32197* = $13,523 (rounded) *PV of $1: n=10; i=12%

Question

Quizplus · Accepted Answer

Using the formula for present value of a future amount, we have:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the annual interest rate as a decimal, and n is the number of years.

Substituting the given values, we get:

PV = 42,000 / (1 + 0.12)^10 
PV = 42,000 / 3.10585 
PV = $13,523 (rounded)

Therefore, the investor should be willing to pay up to $13,523 for the investment. Choice B is the correct answer.

An Investment Product Promises to Pay $42,000 at the End