# 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?

QUESTION POSTED AT 01/06/2020 - 01:57 PM

QUESTION POSTED AT 01/06/2020 - 01:57 PM

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

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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