You have a sum of $10,000 available for investments. You areoffered two options:
Deposit the sum in a bank for 3 years, with an interest rate of10% compounded annually. The bank is also prepared to take on anyadditional investments at the same rate at any time for the next 3years.
Invest the $10,000 in a project with an annual return of $4200.The project life is 3 years.
Which is the preferred option? Explain your answer.
Note: This question highlights one of the basic assumptions usedin economic evaluation techniques.
