Adam is evaluating which stock would yield the best return over a 5-year period. He has gathered the estimated future values of the stocks as shown below. Which stock should he invest in to achieve the greatest return? Stock Present Value (PV) ($) Future Value (FV) in 5 years ($) Alpha 5000 8000 Beta 4000 9000 Gamma 6000 10500
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AAdam should convert these values to present value to decide.
BAdam should invest in the stock with the highest PV.
CAdam should divide the FV by PV to choose the stock with lowest ratio.
DAdam should invest in Gamma, as it provides the highest future value compared to its present value.
✓ Correct answer: D. Adam should invest in Gamma, as it provides the highest future value compared to its present value.To determine which stock provides the best return, Adam should examine the future values of the stocks, not just their present values. Among the options, Stock Gamma has both a considerable future value in 5 years ($$10500$$) and demonstrates the biggest increase from its present value ($$6000$$). The calculation: $$Return_{Gamma} = 10500 - 6000 = 4500$$. This is the highest absolute return among the given stocks.
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