Question
You want to invest your savings of $30,000 in government securities for the next 2 years. Currently, you can invest either in a security that
You want to invest your savings of $30,000 in government securities for the next 2 years. Currently, you can invest either in a security that pays interest of 8.4 percent per year for the next 2 years or in a security that matures in 1 year but pays only 5.8 percent interest. If you make the latter choice, you would then reinvest your savings at the end of the first year for another year.
If you choose the 2-year security, the value of your savings after the second year will be? Answer: $35, 252.00
If you choose to invest in the 1-year security, the value of your savings after the first year will be? Answer: $31,740.00
To do as well as you would with the first choice, during the second year the 1-year security would have to earn??????
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