Ask Question
25 November, 11:24

Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $171,000 in one year.

For what level of interest rate is this project attractive?

+5
Answers (1)
  1. 25 November, 14:59
    0
    The rate of return that would the project attractive is 6.88% to two decimal places

    Explanation:

    In determining, the rate of interest the project is attractive, the formula for Future Value would be used, as the project is least attractive if return is ether zero or greater than zero, hence positive rate of return

    FV=PV * (1+r) ^N

    PV is the present value of $160,000

    FV is the future value of $171000

    N is the number of year which is 1

    r is rate of return that is unknown

    171000=160000 * (1+r) ^1

    171000/160000=1+r

    r = (171000/160000) - 1

    r=1.06875 - 1

    r=0.06875

    The interest rate in dollar terms is $11,000 ($171000-$160000)

    r=6.88%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $171,000 in one year. For what level of ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers