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  1. business
  2. general management
  3. you have a sum of $10,000 available for investment

You have a sum of $10,000 available for investments. You are offered two options: Deposit the sum...

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General Management

You have a sum of $10,000 available for investments. You areoffered two options:

Deposit the sum in a bank for 3 years, with an interest rate of10% compounded annually. The bank is also prepared to take on anyadditional investments at the same rate at any time for the next 3years.

Invest the $10,000 in a project with an annual return of $4200.The project life is 3 years.

Which is the preferred option? Explain your answer.

Note: This question highlights one of the basic assumptions usedin economic evaluation techniques.

Answer & Explanation Solved by verified expert
3.7 Ratings (643 Votes)
You have a sum of 10000 available for investments You are offered two options Lets calculate future value of both options by assuming same interest rate or required rate of return Option 1 Deposit the sum in a bank    See Answer
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