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Investment opportunity pays a return

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A person plans to save $1 for 20 years. They can invest at an annual rate of 10% (r = 0:1). This investment opportunity compounds annually(meaning that they receive interest payments at the end of each year). A second investment opportunity pays a return of r(tilde) x 100%, compounded every decade. (After one decade, the investment of one dollar yields 1 + r(tilde)) For what value of r(tilde) is the person indifferent between these two investments? (Assume that there is no chance that the person wants to cash in the investment before the 20 year period.) Explain the rationale behind your calculation.

Reference no: EM131220334

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