An investor is considering two equally risky investments. Investment A is expect

Question

An investor is considering two equally risky investments. Investment A is expected to return $1,000 per year for the next 5 years. Investment B is expected to return $6,000 at the end of 5 years. Which of the following statements is most correct if both investments A and B have the same cost?
A) A risk averse investor will select investment A because it provides cash earlier than investment B
B) The investor may select investment A or investment B depending on the opportunity cost of money
C) The investor will select investment A only if the cost is less than $1,000
D) A risk adverse investor will select investment B because it is expected to provide the most cash ($6,000>$5,000)

Explanation / Answer

An investor is considering two equally risky investments. Investment A is expected to return $1,000 per year for the next 5 years. Investment B is expected to return $6,000 at the end of 5 years. Which of the following statements is most correct if both investments A and B have the same cost?
A) A risk averse investor will select investment A because it provides cash earlier than investment B
B) The investor may select investment A or investment B depending on the opportunity cost of money
C) The investor will select investment A only if the cost is less than $1,000
D) A risk adverse investor will select investment B because it is expected to provide the most cash ($6,000>$5,000)

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