An institutional investor buys shares of a computer company's stock for $2,000,000. The investor expects the stock to appreciate at the rate of 9% annually for the next 4 years, at which time the investor plans to sell the stock for approximately $2,700,000. Which concept is represented by the amount $2,700,000?
Future value (FV)
The amount of $2,700,000 represents the future value of the investment after appreciating at an annual rate of 9% over four years. This calculation incorporates the initial investment and the expected growth, demonstrating how much the investment will be worth at the end of the specified period.
The future value interest factor (FVIF) is a multiplier used to determine the future value of a single sum of money based on a specific interest rate and time period. While it is involved in calculating future value, it is not the final amount itself; hence, it does not accurately represent the $2,700,000 figure.
Present value (PV) refers to the current worth of a future sum of money given a specific rate of return. It is the opposite of future value, as it discounts future cash flows back to the present. Thus, it does not apply in this scenario where the focus is on the future worth of the investment.
This amount of $2,700,000 is indeed the future value (FV) of the investment after four years, reflecting the total expected return including the initial investment and interest accrued over time. It represents how much the investment will grow due to the anticipated appreciation.
The present value interest factor (PVIF) is a coefficient used to calculate the present value of a future cash flow. It provides a way to discount future amounts back to their present value but does not represent the future value amount, making it irrelevant in this context.
The $2,700,000 figure signifies the future value of the institutional investor's stock after four years of growth at a rate of 9% annually. While other concepts like present value and interest factors are essential in finance, they do not accurately represent the future worth of the investment, reaffirming that the correct interpretation of this amount is indeed future value (FV).
Related Questions
View allRelated Quizzes
View all0PC1 Planning Instructional Strategies for Meaningful Learning Version 1
AP01 Elementary Literacy Curriculum Version 1
AQ01 Applied Healthcare Statistics C784 Version 1
ASO1 Introduction to Statistics for Research Version 1
C172 Network and Security Foundations Version 1
C180 Introduction to Psychology Version 1
C180 Introduction to Psychology Version 2
CKC1 Introduction to Humanities Version 1
DZ01 Mathematics for Elementary Educators III MATH 1330 Version 1
FF01 Human Growth and Development Version 1
- ✓ 500+ Practice Questions
- ✓ Detailed Explanations
- ✓ Progress Analytics
- ✓ Exam Simulations