AP Macroeconomics : How to find level of investment

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : How To Find Level Of Investment

A consumer who discounts future payments at a rate of 10% per year will be willing to pay what amount for an asset that will pay $5000 in 3 years?

Possible Answers:

$5000

$4545.45

$6655

$4132.23

$3756.57

Correct answer:

$3756.57

Explanation:

The consumer's discount rate tells us what return on the investment the consumer must make every year in order to consider the asset worth buying. To determine the cost necessary to make the return worthwhile use the present discount formula:

 

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