Suppose You Are Offered Two Investment Alternatives

Essay

Suppose you are offered two investment alternatives. If you choose Alternative 1, you will have to make an immediate outlay of $26 000. In return, you will receive $1500 at the end of every three months for the next ten years. If you choose Alternative 2, you will have to make an outlay of $14 000 now and $8000 in two years. In return, you will receive $60 000 ten years from now. Interest is 8.22% compounded semi-annually. Compute the net present value for each alternative and determine which investment should be accepted or rejected according to the net present value criterion.