An investor who is considering to equally risky investments . investment A expec

Question

An investor who is considering to equally risky investments . 
investment A expected to return $1,000 per year for the next five years. investment B is expected to return $6,000 at the end of five years. which of the following statements is most correct if both investment A and investment B have the same cost?
a risk averse investor will select investment A because it provides cash earlier than investment B .
a risk averse investor will select investment B because it is expected to provide the most cash 6000 is greater than 5000 .
the investor will select investment A only if the cost is less than 1000.
the investor will select investment A or investment B depending on the opportunity cost of money

Explanation / Answer

Soluton: The investor will select investment A or investment B depending on the opportunity cost of money. Opportunity cost of money is incremental rate of return the business foregoes when it elects to use funds for an internal project, rather than investing cash in a marketable security.

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