An Investment Today of $25,000 Promises to Return $10,000 Annually

question 80

Multiple Choice

An investment today of $25,000 promises to return $10,000 annually for the next three years.What is the approximate real rate of return on this investment if inflation averages 6 percent annually during the period?

• A)3.5 percent
• B)9.7 percent
• C)14.0 percent
• D)20.0 percent

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Definitions:

New Ventures

Businesses or projects initiated by entrepreneurs, often characterized by innovation, high risks, and high rewards.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision, representing the benefits one could have received by taking an alternative action.

Sunk Costs

Expenses that have been spent and cannot be retrieved.

Cash Flow Estimation

This refers to the process of forecasting and evaluating the amount of cash that is expected to flow into and out of a business over a specific period.