Tanner Is Choosing Between Two Investment Options

question 48

Multiple Choice

Tanner is choosing between two investment options. He can invest $500 now and get $550 in one year, or invest $500 now and get $531.40 back later today. The risk-free rate is 3.5%. Which investment should Tanner prefer?

• A) $531.40 later today, since $1 today is worth more than $1 in one year.
• B) $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested.
• C) Neither-both investments have a negative NPV.
• D) Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.

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Definitions:

REMs

Rapid Eye Movements, referring to the quick, darting movements of the eyes during certain stages of sleep associated with dreaming.

Psychoactive Drug

A chemical substance that changes brain function and results in alterations in perception, mood, or consciousness.

Withdrawal

The process of reducing dependence on or quitting a substance, activity, or habit, often leading to uncomfortable symptoms.

Selective Attention

The cognitive process of focusing on a particular object or task within the environment while ignoring irrelevant information.