23. 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?
Answer: C
The amount $2,700,000 represents the future value (FV).
The future value (FV) is the amount an investment is expected to grow to after a certain period, considering a specific interest rate. In this case, the investor anticipates that the stock will appreciate to approximately $2,700,000 after 4 years at an annual growth rate of 9%.
A) Future value interest factor (FVIF)
The future value interest factor (FVIF) is a mathematical factor used to calculate the future value of an investment based on a specific interest rate and time period. While it is related to the future value concept, it is not the amount itself, but rather a component used in the calculation.
B) Present value (PV)
The present value (PV) refers to the current worth of a future sum of money or stream of cash flows given a specified rate of return. In this scenario, the amount of $2,700,000 is not the present value; it is the expected future outcome after the investment grows.
C) Future value (FV)
The future value (FV) is indeed the correct answer, as it denotes the expected amount of money that the investment will grow to over the specified period. In this example, $2,700,000 is the future value after 4 years of compounding at the 9% interest rate.
D) Present value interest factor (PVIF)
The present value interest factor (PVIF) is a factor used to determine the present value of a future sum based on a specific interest rate and time period. It is not relevant in this context since the question pertains to the expected future amount rather than the present value calculation.
Conclusion
The correct answer, future value (FV), clearly represents the amount that the investment is projected to reach after 4 years of appreciation at 9%. All other options either represent calculation components or concepts related to present value, making them unsuitable in this context. Thus, $2,700,000 exemplifies the future value concept effectively.