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You have two investment options: Option A You can purchase $2,000 of stock in a company. You estimate that this company will earn a total
You have two investment options: Option A You can purchase $2,000 of stock in a company. You estimate that this company will earn a total of $10,000 during its life. You expect the company to pay all of these earnings to you as a dividend 10 years from today. Currently, the risk-free rate is 1% but this investment is really risky and you feel that a 14% discount rate is appropriate. Option B You can purchase $2,000 worth of bonds. The bond will pay you $250 at the end of each year for three years. At the end of the third year, the bond will also pay you back its $2,000 face value. You feel that this is a very safe investment and a 2% discount rate is appropriate. Which investment has the highest present value? Group of answer choices
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