SOLUTION: You have $10,000 which you will invest for the next four years. You are considering the following investment alternatives: (I) Purchase units in a bond mutual fund which pays $210

Question 564055: You have $10,000 which you will invest for the next four years. You are considering the following investment alternatives:
(I) Purchase units in a bond mutual fund which pays $210 interest quarterly. Assume that the
interest is reinvested at the coupon rate.
(II) Purchase a 4-year guaranteed investment certificate which pays 3 percent compounded
monthly.
(III)Invest in a stock which promises the following cash flows:
Year 1 $ 0
Year 2 500
Year 3 750
Year 4 2,000
(a)Assume that at the end of year 4, you will get back your $10,000. Which investment alternative do you prefer? Why?
(b)What factors, other than the rate of return, should you consider in making your investment decision?
Answer by cp24(1) (Show Source): You can put this solution on YOUR website!
You have $10,000 which you will invest for the next four years. You are considering the following investment alternatives:
(I) Purchase units in a bond mutual fund which pays $210 interest quarterly. Assume that the
interest is reinvested at the coupon rate.
(II) Purchase a 4-year guaranteed investment certificate which pays 3 percent compounded
monthly.
(III)Invest in a stock which promises the following cash flows:
Year 1 $ 0
Year 2 500
Year 3 750
Year 4 2,000
(a)Assume that at the end of year 4, you will get back your $10,000. Which investment alternative do you prefer? Why?
(b)What factors, other than the rate of return, should you consider in making your investment decision?
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