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What rate will you have to earn

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Question - You currently have $27,000 that you are looking to invest for two years and are considering a government security maturing in one year that pays 2.25% annually. If you do this, you will also have to purchase 1 year security at the end of the first year. The alternative is to invest in a government security that matures in 2 years. Currently a 2 year government security is paying 3% annually. If you invest your money for 1 year and then after 1 year reinvest it for another year, what rate will you have to earn in order to make the two alternatives equal?

Reference no: EM132997962

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