Two? mutually-exclusive investment options

Assignment Help Financial Management

Reference no: EM131944501

Tanner is choosing between two? mutually-exclusive investment options. These options have absolutely no? risk, and Tanner can always borrow and lend at the? risk-free rate.

Option 1. He can invest? $500 now and get? (guaranteed) $550 in one year.

Option 2. He can invest? $600 now and get? (guaranteed) $631.40 back later today.

Assume the? risk-free interest rate is? 3.5%. Which investment should Tanner? prefer?

A. ?$631.40 later? today, since? $1 today is worth more than? $1 in one year.

B. ?$550 in one? year, since the Option? 1's NPV is bigger than option? 2's NPV.

C. Neither minus− both investments have a negative NPV.

D. Tanner should be indifferent between the two investments

Reference no: EM131944501

Questions Cloud

Principal portion and interest portion of mortgage payments : Both the principal portion and interest portion of your mortgage payments are deductible from your income for Federal Tax calculations.

What is the internal rate of return? of investment : What is the internal rate of return? (IRR) of an investment that requires an initial investment of $12,000 today and pays $16,800 in one? year's time

Do you need to purchase supplies or to hire labor : Create an idea for your own MNC to conduct international business. What is the product that you plan to sell? Do you need to purchase supplies or to hire labor?

Briefly describe the concept of the black swan : Briefly describe the concept of the black swan. Explain why you either support or dismiss the concept of the black swan.

Two? mutually-exclusive investment options : Tanner is choosing between two? mutually-exclusive investment options.

Specific relationship between risk and reward : Explain the specific relationship between risk and reward and why this relationship must be true.

Value of each investment based on required rate of return : You have the three following alternatives for investing that money. Calculate the value of each investment based on your required rate of return.

Some of challenges that can probably be easily overcome : What problems do you envision? What are some of the challenges that can probably be easily overcome?

What rate of return will you use to make calculation : How much will college cost in 18 years? Will you be saving for private or public? What rate of return will you use to make this calculation?

User Account

All Pages