Final answer:
If an investor uses an expected return of 8% for present value calculation but the actual return is 6%, the present value would be insufficient to meet the future monetary objective due to a lower than anticipated future value.
Step-by-step explanation:
If an investor uses an expected return of 8% for the present value calculation, but the actual return over the period is only 6%, the present value was insufficient to meet the objective. This is because the future value of the money will be less than anticipated when calculated with a lower interest rate. Present value is a financial concept that describes what a future amount of money is worth in today's terms, taking into account a specific rate of return or interest rate. If the actual return is less than the expected return, the future amount will not be as high as needed, and thus the initial investment (present value) would not have been enough.
In the context given, buying a 10-year bond at an 8% interest rate implies that the investor has a certain future monetary objective in mind. If interest rates increase and similar new bonds offer 12%, the opportunity cost of holding the older bond is increased because the investor could have earned more with the new rate. This illustrates the risk of interest rates changing after the investment is made.
To accurately calculate the present value, one would have to use the actual rate of return or interest rate that would apply over the investment period. In this example, if the investor expected an 8% return but only got a 6% return, the future value (accumulation of the present value) would be lower than needed for the expected future need.