Question 35: Investment opportunity A will require a principal of $1,000 and will yield $200 over the course of 4 years. Investment opportunity B will require a principal of $1,600 and will pay $400 over a five year period. Which of the following statements is true?

Answer: The average annual rates of return of the two investment opportunities are equal.

Refer to question 35. Suppose that Investment A was a piece of land that you purchased for $1,000 and sold for it $1,200 four years later. Assuming you are in the 35% tax bracket and long term capital gains are taxed at 20%, your net average annual rate of return on investment would be:

Group of answer choices

3.25%

4.25%

1.75%

4%

Question 37

Refer again to question 35. Suppose that Investment B was a conventional bond that pays $80 yearly. If you held the bond for the entire 5 years, your net average annual rate of return on investment would be?

Group of answer choices

3.25%

4%

4.25%

1.75%

Thank you.