Robert Plans to Invest $650 in a Savings Account at the Beginning

question 3

Multiple Choice

Robert plans to invest $650 in a savings account at the beginning of each of the next seven years. If his opportunity cost rate is 5 percent compounded annually, how much will his investment be worth at the end of seven years?

• A)$5,048
• B)$5,292
• C)$5,557
• D)$6,058
• E)$6,656

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Definitions:

Crossover Rate

The rate of return at which two projects have the same net present value; used in capital budgeting to evaluate the desirability of investments or projects.

WACC

A measure of a firm's blended cost of capital across all sources, including equity and debt.

NPV

Net Present Value is the calculation used to determine the value of future cash flows in today's dollars, subtracting the initial investment.

Multiple IRRs

Situations where a project or investment has more than one internal rate of return, occurring with alternating cash flows (positive and negative).