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Which would you prefer?

a. A 4% annual yield on a credit risk-free 10-year government bond from the mythical country of Utopia
b. a 3% annual yield on a credit risk-free 10-year government bond from the mythical country of Utopia
c. A 2% annual yield on an investment in 10-year U.S. government bonds
d. A 3% annual yield on an investment in 10-year U.S. government bonds

Respuesta :

jepessoa

Answer:

I would invest in 4% annual yield risk-free bonds from Utopia

Explanation:

I will assume that I am investing $1,000

  • if I invest in a, I will receive $1,000 x 1.04¹⁰ = $1,480.24 in 10 years
  • if I invest in b, I will receive $1,000 x 1.03¹⁰ = $1,343.92 in 10 years
  • if I invest in c, I will receive $1,000 x 1.02¹⁰ = $1,218.99 in 10 years
  • if I invest in d, I will receive $1,000 x 1.03¹⁰ = $1,343.92 in 10 years

Since the 4 bonds are theoretically risk-free, I must choose the one that yields the highest interest rates.

I would invest in 4% annual yield risk-free bonds from Utopia

The following information should be considered;

Here we assume the invested amount be $1,000.

  • if I invest in a, I will receive $1,000 × 1.04¹⁰ = $1,480.24 in 10 years
  • if I invest in b, I will receive $1,000 × 1.03¹⁰ = $1,343.92 in 10 years
  • if I invest in c, I will receive $1,000 × 1.02¹⁰ = $1,218.99 in 10 years
  • if I invest in d, I will receive $1,000 × 1.03¹⁰ = $1,343.92 in 10 years

Based on the above information, the first option should be preferred.

Learn more: brainly.com/question/16911495

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