You are considering a safe investment opportunity that requires a $710 investment today, and will pay $750 two years from now and another $990 five years from now. 1) a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of thia investment le C%. (Round to two aealmal places.) b. If you are choosing between this investment and putting your money in a safe bank aocount that paya an EAR of 5% per year for any horizon, can you make the docision by simply comparing this EAR with the IRR of the invostment? Explain. (Select the beat choice below.) O A. No, because the timing of the cash lows are different. B. Yes, you can always compare IRRS of riskless projects, and an invesiment in the bank is riskless. OC. Yes, because the EAR Is the same at all horizona, Bo the two "projecta" have the aame riakiness, scale and timing. O D. No, this is like comparing the IRRa of two projects.
You are considering a safe investment opportunity that requires a $710 investment today, and will pay $750 two years from now and another $990 five years from now. 1) a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of thia investment le C%. (Round to two aealmal places.) b. If you are choosing between this investment and putting your money in a safe bank aocount that paya an EAR of 5% per year for any horizon, can you make the docision by simply comparing this EAR with the IRR of the invostment? Explain. (Select the beat choice below.) O A. No, because the timing of the cash lows are different. B. Yes, you can always compare IRRS of riskless projects, and an invesiment in the bank is riskless. OC. Yes, because the EAR Is the same at all horizona, Bo the two "projecta" have the aame riakiness, scale and timing. O D. No, this is like comparing the IRRa of two projects.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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M2
Transcribed Image Text:You are considering a safe investment opportunity
that requires a $710 investment today, and will pay
$750 two years from now and another $990 five
years from now.
1) a. What is the IRR of this investment? b. If you
are choosing between this investment and putting
your money in a safe bank account that pays an
EAR of per year for any horizon, can you make the
decision by simply comparing this EAR with the IRR
of the investment? Explain.
a. What is the IRR of this investment?
The IRR of thia Investment le %. (Round to two decimal places.)
b. If you are choosing between this investment and putting your money in a safe bank account that paya an EAR of 5% per year for any horizon, can you make
the decision by simply comparing this EAR with the IRR of the investment? Explain.
(Select the best choice below.)
O A. No, because the timing of the cash flows are different.
O B. Yes, you can always compare IRRS of riskless projects, and an investment in the bank is riskless.
OC. Yes, because the EAR Is the same at all horizona, B0 the two "projecta" have the same riskiness, scale and timing.
O D. No, this is like comparing the IRR3 of two projects.
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