Question
Consider two equally risky securities. A will provide three payments: $500 now, $800 a year later and $1,000 two years later. B will provide a
Consider two equally risky securities. A will provide three payments: $500 now, $800 a year later and $1,000 two years later. B will provide a single payment of $2600 three years from now. The appropriate interest rate is 7.5%. How would you evaluate the two securities? Choose all the right answers.
Select one or more:
a. You should pay a higher price for B, because B's $2600 payment is higher than A's $2300 total payment
b. You should pay a higher price for A because you can get the payment earlier.
c. You should pay a higher price for A because A's PV of multiple CFs is higher than B's PV of single CF.
d. If you re-invest it upon receiving A's each payment, the future value of your investment at the end of year 3 will be greater than $2,620.65
e. If you keep re-invest it upon receiving A's each payment, the future value of your investment at the end of year 3 will be $2600.
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