Ask Question
22 November, 06:38

You invest $1,000 today and expect to sell your investment for $2,000 in 10 years. (LO5-1) a. Is this a good deal if the interest rate is 6%? b. What if the interest rate is 10%?

+4
Answers (1)
  1. 22 November, 07:34
    0
    If the interest rate is 6%, then selling the investment for $2,000 is a good deal.

    If the interest rate is 10%, then selling the investment for $2,000 is a bad deal.

    Explanation:

    If the interest rate is 6% then compounded yearly for 10 years 1,000 should have a future value of

    1000*1.06^10=1,790

    SO if the interest rate is 6% then in 10 years the investment should have a future value of 1,790 and selling it for $2,000 is a very good deal as you are making more than 6% per year which is the interest rate.

    Now if the interest rate is 10% the future value will be

    1,000*1.1^10=2593

    Now the future value is more than 2,000 which means that we will be earning less than the interest rate, which means it is a bad deal.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You invest $1,000 today and expect to sell your investment for $2,000 in 10 years. (LO5-1) a. Is this a good deal if the interest rate is ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers