Travis Wenzel has $2,000 to invest. Usually,he would deposit the money in his savings account,which earns 6% interest compounded monthly. However, he is considering three alternative investmentopportunities.• Option 1. Purchasing a bond for $2,000. Thebond has a face value of $2,000 and pays $100every six months for three years, after which timethe bond matures.• Option 2. Buying and holding a stock that grows11% per year for three years.• Option 3. Making a personal loan of $2,000 to afriend and receiving $150 per year for three years.Determine the equivalent annual cash flows for eachoption, and select the best option
Travis Wenzel has $2,000 to invest. Usually,he would deposit the money in his savings account,which earns 6% interest compounded monthly. However, he is considering three alternative investmentopportunities.• Option 1. Purchasing a bond for $2,000. Thebond has a face value of $2,000 and pays $100every six months for three years, after which timethe bond matures.• Option 2. Buying and holding a stock that grows11% per year for three years.• Option 3. Making a personal loan of $2,000 to afriend and receiving $150 per year for three years.Determine the equivalent annual cash flows for eachoption, and select the best option
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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Question
Travis Wenzel has $2,000 to invest. Usually,
he would deposit the money in his savings account,
which earns 6% interest compounded monthly. However, he is considering three alternative investment
opportunities.
• Option 1. Purchasing a bond for $2,000. The
bond has a face value of $2,000 and pays $100
every six months for three years, after which time
the bond matures.
• Option 2. Buying and holding a stock that grows
11% per year for three years.
• Option 3. Making a personal loan of $2,000 to a
friend and receiving $150 per year for three years.
Determine the equivalent annual cash flows for each
option, and select the best option
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