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You have invested in a business that reports that it is profitable. Your investment of $4500...

You have invested in a business that reports that it is profitable. Your investment of $4500 has produced a profit of $290. The managers think if you leave your $4500 invested with them, they should be able to generate $290 per year, profits for you in perpetuity Evaluating other investment opportunities you note that other long -term investments of similar risk offer expected return of 7.7%.. Should you remain invested in the firm?

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Answer #1

The Annual rate is given by Profit/Investment= 290/4500 = 6.4%

Other investment is giving you a return of 7.7%. So drop the first one and go with the other long term investment which is offering you a return of 7.7%

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