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    Comparing Investments

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    A 2-year $1,000 par zero-coupon bond is currently priced at $819.00. A 2-year $1,000 annuity is currently priced at $1,712.52. Assume: a. the pure expectations theory of interest rates holds, b. neither bond has any default risk, maturity premium, or liquidity premium, and c. you can purchase partial bonds.

    If you want to invest $10,000 in one of the two securities, which is a better buy? Why? Show calculations to support results.

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    https://brainmass.com/business/annuity/comparing-investments-296674

    Solution Preview

    A 2-year $1,000 par zero-coupon bond is currently priced at $819.00. A 2-year $1,000 annuity is currently priced at $1,712.52. Assume: a. the pure expectations theory of interest rates holds, b. neither bond has any default risk, maturity premium, ...

    Solution Summary

    Compares two investments: zero-coupon bond and annuity and determines which is better.

    $2.19

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