Required rate of return for investments


Problem 1: Your friend has given you a hot tip about an investment deal that will pay off $6,000 a year at the end of each of the next three years. If your required rate of return for investments with this degree of risk is 7%, approximately how much is the investment worth to you today?

a. $4,900

b. $14,695

c. $15,745

d. $19,290

Problem 2: You've been offered the opportunity to invest $200,000 for 10 years in return for 10 annual payments of $30,000 each. What annual percent rate return will you get if you take the deal?

a. Between 20 and 21%

b. Between 16 and 17%

c. Between 8 and 9%

d. 15%

Problem 3: From a financial point of view, which is the best choice, to receive $800 now, or a note that promises $1,000 three years from now? Threeyear interest rates are 7%.

a. $800 now

b. $1,000 three years from now

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Finance Basics: Required rate of return for investments
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