Given a choice of two investments, would you choose one that pays a total return

Question

Given a choice of two investments, would you choose one that pays a total return of 15 percent over 10 years or one that pays 0.3 percent per month for 10 years? What annual rate of return does each give you? Instruction: Enter your answers in percentages to the nearest hundredth, for example, 3.00 for 3 percent. The return of 15 percent over 10 years provides an annual return of percent. The return of 0.3 percent per month for 10 years provides an annual return of percent. The investment that pays is preferable.

Explanation / Answer

Option 1: Total Return = 15%

Option 2: Return per month = 0.3%

Return per annum = 0.3 * 12 = 3.6%

Total Return = 3.6 * 10 = 36%

Since the second option gives the highest return, it is preferable.

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