Steve Is Offered an Investment Where for Every $1

question 23

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 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) He ignores the fact that the costs and benefits of the investment are not stated in the same terms.
• B) He ignores the benefits of consuming the $1.00 today against the benefits of consuming the $1.00 five years from now.
• C) He fails to consider the costs of not consuming the $1.00 today.
• D) He considers that the value of the cash he may have in the future is the same as the value of cash he has today.

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Definitions:

Rising Mantle

The upward movement of the Earth's mantle, often leading to volcanic activity.

Divergent Boundary

A plate-tectonic boundary in which two plates move apart (diverge) relative to one another.

Convergent Boundary

A tectonic plate boundary where two plates move toward each other, often resulting in mountain building, earthquakes, or volcanic activity.

Transform Boundary

A type of tectonic plate boundary where two plates slide past each other horizontally.