Which of investment alternatives gives highest return

Assignment Help Financial Management

Reference no: EM131305377

Suppose that you have $1,000 to invest in the bond market on January 1, 2012. You could buy a one-year bond with an interest rate of 4%, a two-year bond with an interest rate of 5%, a three-year bond with an interest rate of 5.5%, or a four-year bond with an interest rate of 6%.

You expect interest rates on one-year bonds in the future to be 6.5% on January 1, 2013, 7% on January 1, 2014, and 9% on January 1, 2015. You want to hold your investment until January 1, 2016.

Which of the following investment alternatives gives you the highest return by 2016:

(a) Buy a four-year bond on January 1, 2012;

(b) buy a three-year bond January 1, 2012, and a one-year bond January 1, 2015;

(d) buy a one-year bond January 1, 2012, and then additional one-year bonds on the first days of 2013, 2014, and 2015?

Reference no: EM131305377

Questions Cloud

Calculate current interest rates on two year treasury notes : Use the expectations theory to calculate the current interest rates on two-year, three-year, and four-year Treasury notes.

Analyze a sales letter or email you receive : Be on the lookout for sales letters you receive at home or through email. Bring one to class so you can discuss the example with other students.

Draw the set of feasible and individually rational payoffs : ECON 421: Problem Set. Assume that the game represented is played for infinite periods, with discount factor δ ∈ [0, 1). When can the cooperative outcome (C, C) be sustained via grim-trigger strategy profile? Draw the set of feasible and individually..

Write an email refusing a customer’s request for a refund : You may invent your own rationale for the decision. Also try including a subtle sales promotion in your closing paragraph.

Which of investment alternatives gives highest return : Suppose that you have $1,000 to invest in the bond market on January 1, 2012.- Which of the given investment alternatives gives you the highest return by 2016.

Determine the quality of the information : Search the Internet for information and identify at least five resources. Use the questions in "Evaluating Web Resources" to determine the quality of the information. Write a brief summary of your analysis and submit it to your instructor.

Invest for three years to earn the highest possible return : Assuming annual compounding, no coupon payments, and no cost of buying or selling bonds, which option should you choose?

Does the training video validate an officers concern : Is stop, question, and frisk constitutional? Outdated? Should it be revoked? Has it been revoked? Was the teenager's argument that he's being harassed valid, or blown out of proportion? Does the training video validate an officer's concern for th..

What will happen to the yields on junk bonds : What is a junk bond? Predict what will happen to the yields on junk bonds as the level of economic activity rises and falls during the business cycle.

User Account

All Pages