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18 February, 19:46

What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years, if the opportunity cost of using funds is 8 percent?

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  1. 18 February, 19:58
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    To get the maximum amount of this asset we shall use the formula:

    A=p (1+r/100) ^n

    where:

    A=future amount

    p=principle amount

    r=rate

    n=time;

    from the question: p=$250000, r=8%, n=5

    thus;

    A=250000 (1+5/100) ^5

    A=250000 (1.05) ^5

    A=$ 319,070.40

    Thus, we conclude that at the end of 5 years the amount generated will be $319,070.40
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