Question
You can buy a 5-year savings bond from the federal government, for which you pay $1,000 today and receive $1,263.00 five years from now. A
You can buy a 5-year savings bond from the federal government, for which you pay $1,000 today and receive $1,263.00 five years from now. A representative from your local bank is also calling you and asking you to deposit $1,000 into a high-yield savings account (a savings account which pays relatively high interest). The savings account would pay annually compounded interest, and you'd have to keep $1,000 invested in the account for at least five years. What interest rate would your banker have to offer you on this savings account in order for you to be indifferent between the bank account and the government savings bond?
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