Decides to invest money in lowest risk securities

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Reference no: EM132061379

Granny Smith wants her money to be safely invested. She decides to invest her money in the lowest risk securities available and thus, she invests in short term Treasury bonds. She wants to have money saved up for a family trip in 2 years and wants to give her granddaughter some money for college in 3 years. The inflation rate is to be 4% next year, 5% the following year and 6% in the third year. Maturity risk is .1% for each year of the bonds' term. The pure interest rate is 1.5%. Using the interest rate model to estimate the returns she would expect on the two and three year bonds.

Reference no: EM132061379

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