Investment A has a future value of $4,000. Investment B has a future value of $3,000. All else equal, which of the following is true? A. Investment A has the higher interest rate. B. Invertment A has lower present value. C. Investment B has the higher interest value. D. Investment B has the higher present value.
Future value from an investment (present value) is computed as -
FV = PV x (1 + r)n
where, r is the interest rate and n being the no. of years
Investment A in our case has a higher future value. It is possible only when -
i) Investment A has a higher present value; or
ii) Investment A has a higher interest rate; or
iii) Investment A is invested for more no. of years.
Therefore, among the given options, Option A is correct, i.e., Investment A has the higher interest rate.
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