A Firm Has Three Different Investment Options

question 160

Multiple Choice

A firm has three different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option C will give the firm $30 million at the end of one year, and nothing thereafter. Which of these options has the highest present value?

• A)Option A
• B)Option B
• C)Option C
• D)The answer depends on the rate of interest, which is not specified here.

Learning how the geometric average rate of return is calculated and its basis.

Recognizing the importance of observation periods and variance in evaluating portfolio performance.

Identifying the creators and the concept behind the M2 measure.

Understanding the applications and differences between Modigliani’s M2 measure and the Treynor T2 measure.

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Definitions:

Franchisor

A business entity that grants licenses to franchisees to operate under its brand and sell its products or services.

Negotiate

The process of discussing terms and reaching agreements in various contexts, such as business deals, contracts, or disputes.

Large Volume Purchases

Transactions involving the procurement of goods in large quantities, typically resulting in cost savings or discounted pricing from suppliers.

Vertical Merger

A merger between two companies that operate at different levels within the production process of a specific industry.