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:

Communist Rule

A system of government where the state plans and controls the economy and a single, often authoritarian party holds power, claiming to make progress toward a higher social order in which all goods are equally shared by the people.

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A military conflict fought from 1853 to 1856 in which Russia lost to an alliance of the Ottoman Empire, France, Britain, and Sardinia, highlighting the frailties of the Russian military.

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