An investment will pay $202,000 at the end of next year for an investment of $182,000 at the start of the year. If the market interest rate is 7.9% over the same period, should this investment be made

Question

Business

Dillon Mcdonald

4 September, 12:55

An investment will pay $202,000 at the end of next year for an investment of $182,000 at the start of the year. If the market interest rate is 7.9% over the same period, should this investment be made

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Answers (1)

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Zavier Burnett · Answer 1

The first investment is more profitable than the general market interest rate.

Explanation:

Giving the following information:

An investment will pay $202,000 at the end of next year for an investment of $182,000 at the start of the year. The market interest rate is 7.9% over the same period.

To compare both options, we need to calculate the final value of investing the $182,000 in other investment that pays a 7.9% interest rate.

We need to use the following formula:

FV = PV * (1+i) ^n

FV = 182,000 * (1.079) = $196,378

The first investment is more profitable than the general market interest rate.