Question

You are thinking about investing $5166 in your friend's landscaping business. Even though you know the investment is risk and you can't be sure, you expect the investment to be worth $5712 next year. You notice that the rate for one year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 8% for the year.. What should you do?

Answer 1

Solution :-

Amount of Investment today = $5,166

Worth of investment next Year = $5,712

Now Rate of Return on this investment in 1 year = ( $5,712 / $5,166 ) - 1  

= 1.1057 - 1

= 0.1057 = 10.57%

Now Return on Investment of equal risk to your friend's landscape business offer an expected return = 8%

Now as The return on this investment is more as compared to investment of Similar Risk .

So Accept the Project

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