-An Investor Is Considering the Two Investments Shown Above

question 29

Multiple Choice

-An investor is considering the two investments shown above. Which of the following statements about these investments is true?

• A) The investor should take investment A since it has a greater net present value (NP
• V).
• B) The investor should take investment A since it has a greater internal rate of return (IR
• R).
• C) The investor should take investment B since it has a greater net present value (NP
• V).
• D) Neither investment should be taken since they both have a negative net present value (NP

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Definitions:

Compounded Monthly

Compounded monthly refers to the process of calculating interest where the interest earned each month is added to the principal, and the next month's interest is calculated on the new total.

College Tuition

The fee that students pay to cover the cost of instruction at a college or university.

Account

A record summarizing the financial transactions related to a particular aspect of a business's financial activities.

Compounded Annually

A method of calculating interest where the interest earned each year is added to the principal, so that the balance doesn't merely grow, it grows at an increasing rate.