Question
An investor considers investing 100 000 TL for the next year. This investor has 3 options. The first option is to buy a government bond
An investor considers investing 100 000 TL for the next year. This investor has 3 options. The first option is to buy a government bond that sells 100 TL. The par value of this government bond is also 100 TL and the remaining maturity is 1 year. This government bond pays %20 annual coupon interest. The second option is to buy a commercial paper which sells 2200 TL discount. The par value is 10 000 TL and the maturity is 1 year. The other alternative is to invest in a common stock for a year. The current market price of the common stock is 6 TL per share and 1-year target price estimation of the market analysts is 7.90 TL on average for this share. Which option would you invest in and why? Show your answer mathematically.
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