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The bank can lend 1 0 0 euro loan providing a fixed payment of 5 3 euro for two years. The alternative is to buy

The bank can lend

100

euro loan

providing a fixed payment of

53

euro for

two years. The alternative is to buy a

government bond paying a yearly fixed

coupon of

10

euro forever. Compute what is

the most profitable investment for the

bank.

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