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You have $2000 to invest, and are choosing between two projects, both of which cost $2000 up front and will yield six years of returns.
You have $2000 to invest, and are choosing between two projects, both of which cost $2000 up front and will yield six years of returns. The returns for the first investment will be paid in nominal $, starting at $400 a year from now and increasing at 8% annually. The returns for the second will be paid in real $, starting at $500 and increasing at 2% annually. If your real hurdle rate is 4.5% and the expected inflation rate is 3.1%, which of these investments should you choose (if any)?
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