Question
You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you
You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you have to invest $3500 now, $1000 a year from now, and $1000 three years from now. In option A, you will receive four annual payments of $2000 each (you will get the first $2000 payment a year from now). In option B, you will receive a payment equal to $4000 at the beginning of year 3. Which of these two options would you choose based on AE criterion? Assume the interest rate is 10%. Note: find the AE for both projects. Show your calculations.
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