P 5-36 (similar to) Question Help You are thinking about investing $5,125 in you

Question

P 5-36 (similar to) Question Help You are thinking about investing $5,125 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,630 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 11% for the year. What should you do? The present value of the return is $. (Round to the nearest cent.)

Explanation / Answer

Calculation of present value of return
Expected amount to be received at the end of year $5630
PVF@11% for one year 0.901
Present value of return = 5630*0.901
=$5072.63

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