Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are considering a safe investment opportunity that requires a $1,110 investment today, and will pay $980 two years from now and another $960 five
You are considering a safe investment opportunity that requires a $1,110 investment today, and will pay $980 two years from now and another $960 five years from now. a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a a. What is the IRR of this investment? The IRR of this investment is %. (Round to two decimal places.) b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. (Select the best choice below.) A. No, this is like comparing the IRRs of two projects. B. Yes, you can always compare IRRs of riskless projects, and an investment in the bank is riskless. O C. No, because the timing of the cash flows are different. OD. Yes, because the EAR is the same at all horizons, so the two "projects" have the same riskiness, scale and timing
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started