Assume you have $12,000 in cash. You can deposit it today in a mutual fund earning 8.2% semiannually, or you can wait, enjoy some of it, and invest $11,000 in your brother's business in two years. Your brother is promising you a return of at least 10% on your investment. Regardless of the investment option you choose, you will have to cash in at the end of 10 years. Assume your brother is trustworthy and that both investments carry the same risk. Which investment option will you choose and why?

Assume you have $12,000 in cash. You can deposit it today in a mutual fund earning 8.2% semiannually, or you can wait, enjoy some of it, and invest $11,000 in your brother's business in two years. Your brother is promising you a return of at least 10% on your investment. Regardless of the investment option you choose, you will have to cash in at the end of 10 years. Assume your brother is trustworthy and that both investments carry the same risk. Which investment option will you choose and why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assume you have $12,000 in cash. You can deposit it
today in a mutual fund earning 8.2% semiannually, or you
can wait, enjoy some of it, and invest $11,000 in your
brother's business in two years. Your brother is promising
you a return of at least 10%
on your investment. Regardless of the investment option
you choose, you will have to cash in at the end of 10 years.
Assume your brother is trustworthy and that both
investments carry the same risk.
Which investment option will you choose and why?

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