Answer to Question #6198 in Finance for sarah

Question #6198
you have 10000 which you will invest for the next four years. you are considering the following investment alternatives: a) purchase units in a bond mutual which pays 210 interest quarterly. assume the interest is reinvested at the coupon rate b) purchase a 4 year guaranteed investment certificate which pays 3 percent compound monthly c) invest in a stock which promise a following cash flow year 1 0 year 2 500 year 3 750 year 4 2000 assume that at the end of year 4, you will get back your 10000. which investment alternative do you prefer? why?
Expert's answer
You will get:
a) S = 10,000 + 210*4*4 = 13,360
b) S = 10,000*(1+12*0.03)^4
= 34,210
c) S = 10,000 + 500 + 750 + 2,000 = 13,250
So, the best
alternative is b)

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