- This topic has 3 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
Hi Sir,
A sum of money was invested for 10 years at 7% per annum and is now worth $2,000. What was the
original amount invested (to the nearest $)?The answer:
The discount factor for 10 years at 7% is 0.508.
original amount invested = $2,000*0.508= 1,016$My problem here is that I used the whole discount factor percentages from 1 to 10 year. And added them up and multiplied by 2,000$. which is actually the wrong way to calculate the original amount of money invested.
Can you explain what kind of concept am I missing?
Thanks in advance
Adding up the factors for each of 10 years would be assuming that there was an investment every year.
That is not the case – there is just one amount invested now that will have grown to $2,000 in 10 years time.
I do not think you can have watched my free lectures on this!
- The topic ‘Capital budgeting’ is closed to new replies.