You want to invest your savings of $30,000 in government securities in for the next two years.Currently,youcan invest either in a security that pays 8.1 percent per year for two years. Or in a security that matures in 1 year but pays 6.3 percent interest if you make the latter choice you would then invest your savings at the end of the first year for another year.
A.Why might you choose the to make an investment in the 1-year security.Which theory of term structure have you supported in your answer?
b.Assume your required rate of return on the second year investment is 10.9 percent,otherwise you would go with the 2 year security. What rationale could you offer for your preference?
If you choose the 2-year security the value of your savings after the second year would be ?
You want to invest your savings of $30,000 in government securities in for the next two years.Currently,youcan invest either in a security that pays 8.1 percent per year for two years. Or in a security that matures in 1 year but pays 6.3 percent interest if you make the latter choice you would then invest your savings at the end of the first year for another year.
A.Why might you choose the to make an investment in the 1-year security.Which theory of term structure have you supported in your answer?
b.Assume your required rate of return on the second year investment is 10.9 percent,otherwise you would go with the 2 year security. What rationale could you offer for your preference?
If you choose the 2-year security the value of your savings after the second year would be ?
