Tran Jiang has $2,000 to invest. Usually, he would deposit the money in his savings account, which earns 6% interest compound monthly. However, he is considering three alternative investment opportunities:Purchase a bond for $2,000. The bond has a face value of $2,000 and pays $100 every 6 months for three years, after which time the bond matures.Buying and holding a stock that grows 11% per year for 3 years.Making a personal loan of $2,000 to a friend and receiving $150 per year for 3 years.Determine the equivalent cash flows for each option and select the best option.

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Answered: Tran Jiang has $2,000 to invest.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Tran Jiang has $2,000 to invest. Usually, he would deposit the money in his savings account, which earns 6% interest compound monthly. However, he is considering three alternative investment opportunities:

Purchase a bond for $2,000. The bond has a face value of $2,000 and pays $100 every 6 months for three years, after which time the bond matures.
Buying and holding a stock that grows 11% per year for 3 years.
Making a personal loan of $2,000 to a friend and receiving $150 per year for 3 years.

Determine the equivalent cash flows for each option and select the best option.

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