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Question: You have $500 to invest, and are choosing between two projects, both of which cost $500 up front and will yield six years of returns. The returns for the first investment will start at $100 (in nominal $) a year from now and increasing at 3% annually. The returns for the second start at $110 (in real $) and increase at 1% annually. If your real hurdle rate is 7% and the expected inflation rate is 2%, which of these investments should you choose (if any)? Show formulas used/work done.

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