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Previous Example

Real investment opportunity

Cost: $1,000 today

Benefit: $1,030 in one year

$1,000 today becomes $1,030 in one year.

Financial market, with an interest rate of 5%:

$1,000×(1+rf) = $1,000×(1.05) = $1,050

$1,000 today becomes $1,050 in one year.

What do we think of the investment opportunity?

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