Suleiman Must Make a Choice Between Two Investment Alternatives

question 54

Multiple Choice

Suleiman must make a choice between two investment alternatives. Alternative 1 will provide him returns of $300 000 at the end of second year and $700 000 at the end of fifth year. Alternative 2 will provide him returns $180 000 at the end of each of the next six years. Alternative 3 will provide him returns $370 000 at the end of second, fourth and sixth years. Which alternative is preferable if money is worth 5.5556%?

• A) Alternative 1
• B) Alternative 2
• C) Alternative 3
• D) Alternative 2 or Alternative 3, as both are essentially the same
• E) Alternative 1 or Alternative 3, as both are essentially same

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Definitions:

Compounded Monthly

A method of calculating interest where the accumulated interest is added to the principal sum each month.

Retires

The act of leaving one's job and ceasing to work, typically because of age or health.

Retirement Savings Plan

a financial arrangement designed to allow individuals to accumulate funds for their retirement.

Compounded Monthly

This refers to the process of calculating interest on both the principal amount and accrued interest every month.