posted by Sophia
suppose you want to invest $60,000 for ten years. You can invest your money in a CD that earns 4% interest, compounded quarterly and has no risk, or you can invest your money in futures that ear 10% interest, compounded quarterly. However, the second investment has a 25% chance of failing and if it does, you lose all of your money.
a.) how much will someone have in 10 years if CD was chosen.
c.) If someoe choses to invest in futures, how much money will you have in 10 years if the investment succeeds? What investment would you choose?
a. P = Po(1+r)^n
Po = $60,000.
r = (4%/4)/100% = 0.01 = Quarterly % rate expressed as a decimal.
n = 4Comp./yr. * 10yrs. = 40 Compounding
P = ?
c. Same procedure as a.