1. Which of the following is true about time value of money?
a. The further into the future, the larger the present value of a lump sum.
b. The further into the future, the lower the present value of a lump sum.
c. The present value of an annuity is always larger than the future value of the same annuity.
d. Present value of a lump sum is always greater than the future value.
e. None of the above
2. You are considering investing in two independent projects “A” and “B”. Project A requires an initial investment of $12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after one year, you should:
a. Accept A and reject B
b. Accept B and reject A
c. Accept both projects
d. Reject both projects