Question

Brett has an investment opportunity that promises to pay him $ 16000 in four years. He could earn a 8​% annual return investing his money elsewhere. What is the maximum amount he would be willing to invest in this​ opportunity?

Answer 1

To determine the maximum amount Brett would be willing to invest in this opportunity, we need to calculate the present value of $16,000 received in four years at an 8% annual return rate. The maximum amount Brett would be willing to invest is $11,733.12.

Step-by-step explanation:

To determine the maximum amount Brett would be willing to invest in this opportunity, we need to calculate the present value of $16,000 received in four years at an 8% annual return rate.

Using the formula for present value of a future amount, the maximum amount Brett would be willing to invest is $11,733.12. This means that if he can invest $11,733.12 elsewhere at an 8% annual return, he would receive the same amount as the $16,000 investment opportunity.

Brett's maximum investment amount can be calculated as:

PV = FV / (1 + r)^n

PV = 16000 / (1 + 0.08)^4

PV = 11733.12