Question

You recently invested $18,000 of your savings in a security issued by a large company. The security agreement pays you 6 percent per year and has a maturity three years from the day you purchased it. What is the total cash flow you expect to receive from this investment, separated into the return on your investment and the return of your investment?

Answer 1

Answer:

Total cash flow: $21,240

Return on investment: 18%

Explanation:

It has been given that you recently invested $18,000 of your savings in a security issued by a large company. The security agreement pays you 6 percent per year and has a maturity three years from the day you purchased it.

$6\%=\frac{6}{100}=0.06$

$\text{Total cash flow}=\ 18,000(1+0.06\times 3)$

$\text{Total cash flow}=\ 18,000(1+0.18)$

$\text{Total cash flow}=\ 18,000(1.18)$

$\text{Total cash flow}=\ 21,240$

$\text{Return on investment}=\frac{\text{Benefit}}{\text{Cost of investment}}\times100$

$\text{Return on investment}=\frac{\ 21,240-\ 18,000}{\ 18,000}\times100$

$\text{Return on investment}=\frac{\ 3,240}{\ 18,000}\times100$

$\text{Return on investment}=0.18\times100$

$\text{Return on investment}=18\%$

Therefore, the total cash flow would be $21,240 and return on investment is 18%.