Question

anner is choosing between two​ mutually-exclusive investment options. These options have absolutely no​ risk, and Tanner can always borrow and lend at the​ risk-free rate. Option 1. He can invest​ $500 now and get​ (guaranteed) $550 in one year. Option 2. He can invest​ $600 now and get​ (guaranteed) $631.40 back later today. Assume the​ risk-free interest rate is​ 3.5%. Which investment should Tanner​ prefer?

Answer 1

D) The NPVs are equal, so that each is the same as $31.40 today.