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25 May, 14:47

Your friend is looking for investors in a risky business venture. To convince you to participate, she is offering you a 17% rate of return in your investment. How much should you be willing to invest your friend s company, if she believes that she will be able to pay you the following amounts: $1000 at the end of the first year, $4000 at the end of the second year, and $5000 at the end of years 3, 4, and 5.

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  1. 25 May, 15:27
    0
    The answer is $11,847

    Explanation:

    Amount to be invested is equal to the present value of future inflows

    Present value = future value / (1+Interest rate) ^Number of years

    Hence, amount to be invested = 1000 / (1.17) + 4000 / (1.17) ^2 + 5000 / (1.17) ^3 + 5000 / (1.17) ^4 + 5000 / (1.17) ^5

    = $11,847.

    Hence, the answer is $11,847 ...
  2. 25 May, 18:28
    0
    B - $13,556.82

    Explanation:

    Amount to be invested is equal to the present value of future inflows

    Present value = future value / (1+Interest rate) ^Number of years

    The actual amount at the end of the first year should be $3000 if there is an answer in the options

    The amount at the end of the second year is $4000

    The amount at the end of the third, fourth and fifth year is $5000

    Hence, amount to be invested = 3000 / (1.17) + 4000 / (1.17) ^2 + 5000 / (1.17) ^3 + 5000 / (1.17) ^4 + 5000 / (1.17) ^5

    = $13,556.82

    Hence, the answer is $13,556.82
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