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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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  1. 22 January, 14:36
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    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%
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