Time value Personal Finance Problem Jim Nance has been offered an investment tha

Question

Time value Personal Finance Problem Jim Nance has been offered an investment that will pay him $430 three years from today. a. If his opportunity cost is 6% compounded annually, what value should he place on this opportunity today? b. What is the most he should pay to purchase this payment today? c. If Jim can purchase this investment for less than the amount calculated in part (a), what does that imply about the rate of return that he will earn on the investment? a. The value Jim should place on this opportunity today is (Round to the nearest cent.) b. The most he should pay to purchase this payment today is S (Round to the nearest cent) c. If Jim pays less than $361.04 computed in part a for the investment, his rate of return will be the opportunity cost of 6%. (Select from the drop-down menu.) less than equal to greater than

Explanation / Answer

A:PV of the opportunity= FV/(1+r)^n

= 430/1.06^3= $361.04

B: Most he should pay = $361.04

C: greater than

If he pays $361.04 , the rate of return will be same as 6%. If he pays lesser it means his return is higher.

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