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You are considering the choice between investing $50000 in a conventional 1 year bank CD offering an interest rate of 5% and a 1 year
You are considering the choice between investing $50000 in a conventional 1 year bank CD offering an interest rate of 5% and a 1 year "inflation plus" CD offering 1.5% per year plus the inflation rate.
(a) which is the safer investment?
(b) which offers the higher expected return?
(c) If you expect the rate of inflation to be 3% per year, which is the better investment?
(please with some workings to back the answer)
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