asked 106k views
5 votes
What is the problem with investing a stipulation and given 2 annual percentage rates?

1) The stipulation is not clear
2) The annual percentage rates are not provided
3) The problem is incomplete
4) There is no problem with investing a stipulation and given 2 annual percentage rates

1 Answer

2 votes

Final answer:

The issue with investing a stipulation and provided 2 annual percentage rates is that the problem seems incomplete. To make an informed investment decision, one needs to evaluate the potential returns against opportunity costs and the time value of money, considering factors like risk premiums.

Step-by-step explanation:

The problem with investing a stipulation and given 2 annual percentage rates is that the problem description appears to be incomplete (option 3). To properly assess an investment decision, one should have a clear understanding of the stipulation and be provided with specific interest rates for comparison. If the context is about choosing between different interest rates for investment or loans, one must compare the potential returns or costs associated with each rate and consider the time value of money.

For example, a firm considering an investment earning a 6% return will need to evaluate whether this is a smart choice compared to its opportunity cost, such as paying 8% interest on a loan. The firm currently has cash and will not need to borrow, so it should compare the 6% potential earnings with other investment opportunities. If the firm's opportunity cost of capital is less than 6%, the investment could be worthwhile. However, if alternative investments offer higher returns than 6% or the firm values liquidity, it might decide against the investment.

answered
User Jean De Lavarene
by
8.2k points
Welcome to Qamnty — a place to ask, share, and grow together. Join our community and get real answers from real people.