Final answer:
The question asks to make a decision on investing in a bond using present value analysis and understanding of compound interest, illustrating the importance of saving early and considering alternative investments.
Step-by-step explanation:
The original question is centered around the concept of making a financial decision regarding the purchase of a bond at its present value based on alternative investment opportunities and the compound interest. Specifically, the question poses a scenario in which an individual is considering investing $1000 in a bond, but notices that an alternative investment could yield $1,080 in a year from an investment of $964, assuming a 12% interest rate. Therefore, the investor decides not to pay more than $964 for the $1000 bond.
The question proceeds to discuss the power of compound interest and the importance of starting to save early. An example is provided where a $3,000 investment at a 7% annual return rate grows substantially over 40 years. This illustrates the effect of compound interest over a long period.
In summary, this question from a college-level business course prompts students to understand present value, opportunity costs, and compound interest as they relate to personal finance and investing decisions.