Your neighbor offers you an investment opportunity, which will pay a single lump sum of S2,000 five years from today. The investment requires a single payment of The return on the investment is % A. 4.195 B. 4.729 C. 5.361 D. 5.922 E. 6.961

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Business

Ronan Roth

22 January, 13:57

Your neighbor offers you an investment opportunity, which will pay a single lump sum of S2,000 five years from today. The investment requires a single payment of The return on the investment is % A. 4.195 B. 4.729 C. 5.361 D. 5.922 E. 6.961

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Johnathan Mason · Answer 1

This question has a missing information. I have found the complete version and pasted it down below;

"Your neighbor offers you an investment opportunity, which will pay a single lump sum of S2,000 five years from today. The investment requires a single payment of $1,500 today. The return on the investment is % A. 4.195 B. 4.729 C. 5.361 D. 5.922 E. 6.961 "

Explanation:

This question requires you to find that discount rate given a single future cashflow. $2,000 is expected 5 years from today, hence the future value. $1,500 payment today is the dollar value today, hence the Present value.

Using a financial calculator, you will key in the following inputs;

Total duration; N = 5

Present value; PV = - 1,500 (it's a cash outflow hence negative)

Recurring payment; PMT = 0

Future value; FV = 2,000

then find the rate by keying in CPT I/Y = 5.922%

Therefore, the return on the investment is 5.92%