A Firm Has Three Different Investment Options

question 160

Multiple Choice

A firm has three different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option C will give the firm $30 million at the end of one year, and nothing thereafter. Which of these options has the highest present value?

• A)Option A
• B)Option B
• C)Option C
• D)The answer depends on the rate of interest, which is not specified here.

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Definitions:

Island Arc

A curved chain of volcanic islands located at a tectonic plate margin, above a subducting zone.

Linear Island Chain

A series of islands aligned in a straight line, often created by the movement of a tectonic plate over a stationary hotspot in the Earth's mantle.

Seamount

A submarine mountain, in some cases flat-topped, that rises above the seafloor.

Pacific Ocean

The largest and deepest of the world's ocean basins, extending from the Arctic in the north to the Antarctic in the south.