Question

Your firm has a? risk-free investment opportunity with an initial investment of $ 160 comma 000 today and receive $ 175 comma 000 in one year. For what level of interest rates is this project? attractive? The project will be attractive when the interest rate is any positive value less than or equal to

Answer 1

Solution:
	The project will be attractive when the interest rate is any positive value less than or equal		10%
Working Notes:
	Since , project will be attractive only interest rate return will be equal or higher than the current rate earned.
	C0 = Investment = $160,000
	FV=Future Value = $175,000
	r= compounded annually = r% = ??
	n = no. Of periods = 1 years
	Using future value formula
	FV= C0 x (1+r)^n
	176,000 = 160,000 (1 + r%)^1
	(1+r%) =176,000/$160,000
	(1+r%) = 1.1
	r% = 1.1 - 1
	r/100 = 0.10
	r=0.10 x 100
	r= 10%
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