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3 . You have a choice of investing in two government notes with a 5 - year maturity and a $ 1 0 , 0
You have a choice of investing in two government notes with a year maturity and a $ face value. The first pays annually. The second pays a real yield of with the amount of interest adjusted annually based on changes in the CPI the CPI was at when the notes were issued See the table below for the CPI in each year. a How much interest is paid each year on each security? b Using the dollarweighted return see CH what is the nominal, annual rate of return on each security? c Based on the answer to b which alternative produced the higher return, and why?
You have a choice of investing in two government notes with a year maturity and a $ face value. The first pays annually. The second pays a real yield of with the amount of interest adjusted annually based on changes in the CPI the CPI was at when the notes were issued See the table below for the CPI in each year.
a How much interest is paid each year on each security?
b Using the dollarweighted return see CH what is the nominal, annual rate of return on each security?
c Based on the answer to b which alternative produced the higher return, and why?
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