Question

You have been offered an investment in gold fund . The entry price is $4,500 today In four years time you will receive $2,000 and in eight years $7,500. What is the value of this investment today if your opportunity cost is 4.5%pa?"

9500

5000

6951

2451

zero

Answer 1

Future Value = 2,000 Time Period = 4 Years Opportunity Cost = 4.5% Present Value = ? Present Value = FV {1/(1+r)^n} Present value = 2,000 {1/(1+0.045)^4} PV = 2,000 {1/1.1925} PV = 2,000 {0.8385} PV = 1,677	Future Value = 7,500 Time Period = 8 Years Opportunity Cost = 4.5% Present Value = ? Present Value = FV {1/(1+r)^n} Present value = 7,500 {1/(1+0.045)^8} PV = 7,500 {1/1.4221} PV = 7,500 {0.7031} PV = 5,273.25
Total Present Value of Investment = 1,677 + 5,273.25 = 6,950.25 Or 6,951

So your answer will be 6,951(there is little difference as i have taken just 4 digits after decimals)

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