Travis Wenzel has $2,000 to invest. Usually, he would deposit the money in his savings account, which

Question:

Travis Wenzel has $2,000 to invest. Usually, he would deposit the money in his savings account, which earns 6% interest compounded monthly. However, he is considering three alternative investment opportunities.
• Option 1. Purchasing a bond for $2,000. The bond has a of $2,000 and pays $100 every six months for three years, after which time the bond matures.
• Option 2. Buying and holding a stock that grows 11 % per year for three years.
• Option 3. Making a personal loan of $2,000 to a friend and receiving $150 per year for three years.
Determine the equivalent annual cash flows for each option, and select the best option.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...