You must choose between two passive investments. Investment A requires an initial investment of $50,000 but will

Question:

You must choose between two passive investments.

Investment A requires an initial investment of $50,000 but will return $71,000 in three years.

Investment B requires an initial investment of $45,000 but will return $60,000 in two years.

You choose a discount rate of 10% to make your decision.

What is the present value of each investment?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...