Question

Eric is considering an investment that will pay $8, 200 a year for five years, starting one year from today. What is the maximum amount he should pay for this investment if he desires a rate of return of 11.2 percent? $17, 899.08 $27, 117.36 $20, 186.75 $30, 154.50 $18, 153.55

Answer 1

$30, 154.50

Step-by-step explanation:

For compute the maximum amount, we need to calculate the present value which is shown below:

Present value would be

= Paying amount for five years × PVIFA factor at 11.2% for 5 years

= $8,200 × 3.6774

= $30,154.68 approx

Simply we multiplied the paying amount with the PVIFA factor to get the maximum paying amount

And, refer to the PVIFA table