Tanner Is Choosing Between Two Investment Options

question 119

Multiple Choice

Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550 in one year, or invest $500 now and get (guaranteed) $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:

Myelomas

A type of cancer that arises from plasma cells in the bone marrow.

IRT

Interactive Response Technology, a system used in clinical trials for managing patients, supplies, and data.

Onc/o

A prefix used in medical terminology relating to tumors or cancer.

Sarc/o

Refers to flesh or connective tissue in medical terminology.