Steve Is Offered an Investment Where for Every $1

question 10

Multiple Choice

Steve is offered an investment where for every $1.00 invested today,he will receive $1.10 at the end of each of the next five years.Steve concludes that in five years time he will have $1.10 for every $1.00 invested and that this investment will increase his personal value.What is Steve's major error in reasoning when making this decision?

• A)Costs and benefits must be in the same terms to be compared.
• B)There may be other investments that he can make that will offer even bigger benefits.
• C)The investment may have hidden costs that will reduce the amount of benefit he receives.
• D)The value of the cash he has today is greater than the value of the cash he may have in the future.

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Definitions:

Bid-rigging

An illegal agreement between parties to conspire and fix the bidding process, often in procurement auctions.

Sealed-bid

A bidding process where all the bids are kept confidential until a designated opening time, preventing bidders from seeing competitors' bids.

Auctions

A public sale process where goods or services are sold to the highest bidder.

Common-value Auction

An auction format where the item for sale is of the same value to all bidders, but the bidders may have different information about the item's actual value.