Jim Nance has been offered an investment that will pay him $500 three years from today. a.
Question:
a. If his opportunity cost is 7% 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?
Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
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Related Book For 
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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