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Six Sigma Black Belt Exam Prep

Category - Black Belt

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Richard is promised an amount equal to $10,000 in two years if he keeps his investment with his family’s restaurant. He is offered an annual interest rate of 5%. What is the Net Present Value (NPV) of Richard’s investment?
  1. $9,070
  2. $7,090
  3. $9,090
  4. $3,070
Explanation
Answer: A - The NPV of Richard’s investment is $9,070.

Key Takeaway: To calculate the NPV of an investment with a known return date and known interest rates over a period of time, the following formula is used: P = A (1 + i)-n. An NPV provides an estimate of how much money is needed to invest currently in order to gain a set amount in the future.
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