Selina purchases a 5-year CD for $1,000 and a $1,000 municipal bond. The CD has a 2% interest rate APR compounded quarterly and a fine of $50 for early withdrawal. The bond has a coupon rate of 9%, paid annually. After 3 years, Selina comes into a financial crisis. A friend offers to buy her bond for $1000 to help her make ends meet. Is it a better choice for Selina to cash in her CD early or to sell her bond? Hint: Which choice will lead to a larger net gain at the end of the investment? A. Cash CD early. B.Sell her Bond.
Selina purchases a 5-year CD for $1,000 and a $1,000 municipal bond. The CD has a 2% interest rate APR compounded quarterly and a fine of $50 for early withdrawal. The bond has a coupon rate of 9%, paid annually. After 3 years, Selina comes into a financial crisis. A friend offers to buy her bond for $1000 to help her make ends meet. Is it a better choice for Selina to cash in her CD early or to sell her bond? Hint: Which choice will lead to a larger net gain at the end of the investment? A. Cash CD early. B.Sell her Bond.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Selina purchases a 5-year CD for $1,000 and a $1,000 municipal bond. The CD has a 2% interest rate APR compounded quarterly and a fine of $50 for early withdrawal. The bond has a coupon rate of 9%, paid annually. After 3 years, Selina comes into a financial crisis. A friend offers to buy her bond for $1000 to help her make ends meet. Is it a better choice for Selina to cash in her CD early or to sell her bond? Hint: Which choice will lead to a larger net gain at the end of the investment?
A. Cash CD early.
B.Sell her Bond.
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