Question Five: Rates of Returns

Investment One is a four-year investment with a cost of $275,000 and a promised payout of $375,000 at maturity. Investment Two is a six-year investment with a cost of $275,000 and a promised payout of $475,000. Investment Three is a nine-year investment with a cost of $275,000 and a promised payout of $575,000. Due to the minimum investment requirement and your budget constraint, you can only invest in one of the investments. a. Assuming all these investment opportunities have the same level of risk, calculate the holding period return (HPR) and effective annual rate (EAR) for each investment and select the best investment choice.