Steve Is Offered an Investment Where for Every $1

question 68

Multiple Choice

Steve is offered an investment where for every $1.00 invested today, he will receive $1.10 in five years' time. 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)There may be other investments that he can make that will offer even bigger benefits.
• B)The investment may have hidden costs that will reduce the amount of benefit he receives.
• C)The value of the cash he has today is greater than the value of the cash he may have in the future.
• D)Costs and benefits must be in the same terms to be compared.

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Definitions:

Reject

In the context of statistical hypothesis testing, to conclude that the evidence is sufficiently strong to discard the null hypothesis.

Binge Drinking

The consumption of an excessive amount of alcohol in a short period of time, typically defined as five or more drinks for men and four or more drinks for women in about two hours.

Analysis Result

The outcome or conclusions derived from systematically examining and interpreting data.

Probability

A measure of the likelihood that an event will occur.