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What is the minimum annual return

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Problem - A 3-year CD offers a 2% annual return with no reinvestment risk. A 1- year CD offers a 1.2% annual return with no reivestment risk. You believe interest rates are going up and decide to invest your money in the 1-year CD, hoping to reinvest in another CD, with a 2-year term, at maturity. What is the minimum annual return you need to earn on that 2-year CD such that you will have earned the same return after 3 years as the 3-year CD investment?

Reference no: EM132976906

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