Evaluating Alternative Cash Flows Blaine recently completed his degree at Sun Tan College and TV Repair Center in San Diego. During his final semester, he won the national greased sand volleyball championship and received $75,000 in prize money. After paying off his college debts, Blaine had $50,000 to invest and talked with an investment counselor. The counselor suggested purchasing either the common stock of Ace Corporation or a 10-year certificate of deposit from a local bank. The common stock pays only a small dividend each year but is likely to increase in value as the company grows. The certificate of deposit pays 5 percent interest annually and can be cashed in at any time without penalty.

a. What factors might lead Blaine to purchase the stock?

b. What factors might lead Blaine to purchase the certificate of deposit?

c. If the certificate of deposit could not be cashed in until maturity, what factors might cause Blaine to purchase a five-year rather than a ten-year certificate of deposit even if he did not anticipate having a need for the money at the end of five years?