Jasmine Has Two Investment Choices

question 38

Multiple Choice

Jasmine has two investment choices. Alternative 1 requires an immediate outlay of $150 000 and offers a return of $417 000 after seven years. Alternative 2 requires an immediate outlay of $180 000 in return for which $25 000 will be received at the end of every six months for the next seven years. Alternative 3 requires an immediate outlay of $200 000 in return for which $60 000 will be received at the end of every year for the next seven years. The required rate of return on investment is 7.4% compounded semi-annually. What is Jasmine's most preferred option?

• A) Alternative 1
• B) Alternative 2
• C) Alternative 3
• D) Alternative 3 or Alternative 2, as both are essentially same
• E) Alternative 1 or Alternative 2, as both are essentially same

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Definitions:

Speed

The rate at which an object covers distance, typically measured in units of distance over time.

Car

A wheeled vehicle used for transporting passengers, which also carries its own engine or motor.

Estimate

An approximate calculation or judgement of the value, number, quantity, or extent of something.

Income

The financial gain received by an individual or a business, typically calculated on a yearly basis, from work, investments, or other sources.