An Investment Is Expected to Yield $300 in Three Years

question 54

Multiple Choice

An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%?

• A) $735
• B) $865
• C) $885
• D) $900

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Definitions:

Monte Carlo Sampling

A statistical technique that utilizes random sampling and probability to solve problems that might be deterministic in principle.

Latin Hypercube Sampling

A statistical method used in simulations that stratifies the sample space to ensure a more comprehensive exploration of variables across their entire range of values.

Assumption's Probability Distribution

The theoretical distribution of probabilities assigned to all possible values of a variable based on certain assumptions.

NPV

Net Present Value; a financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows.