Question

You can buy a $50savings bond today for $25 and redeem the bond in 10 years for its full facevalue of $50. You could also put your money in a money market account that pays7% interest per year. Which option is better assuming they are of equal risk?a. The money market accounnt is better because it pays more interest.b.. The money market account is better because it requires a smaller investment.c. The savings bond is better because it earns a higher interest rate.d. The money marketand savings bond both earn 7% interest, so they are equal in value.

Answer 1

Answer:

The correct option is D,the money market and savings bond both earn 7% interest so they are equal.

Explanation:

In deciding the option that is preferable ,we need to need the rate of interest offered by the savings bond with which we can compare to the return offered by the money market account.

Using financial calculator, rate=rate(nper,,-pv,fv,1)

Please take close look at the usage of double commas and 1 in the formula.

nper= number of years=10 years

pv=$25

fv=$50

rate=rate(10,,-25,50,1)

rate=7%

The money market and savings bond both earn 7% interest so they are equal in value

To understand how this is done in excel ,find attached.