Steve Howell is seeking to select between 2 fixed-interest securities where all income and capital will be returned at maturity that he has assessed as having the same amount of risk exposure for a 3-year term. He has $10,000 available for immediate investment. Ignore the effects of taxation in any calculations.
The details for each security are as follows:
Security A:
Issuer: Wakpac Bank
Annual nominal compound interest rate: Year 1: 4%, Year 2: 6%, Year 3: 8%
Security B:
Issuer: Fortune Finance
Annual real interest rate: 2.75% compounded for 3 years
It expected that inflation for each of the next 3 years will be as follows:
Year 1: 2.5%, Year 2: 3%, Year 3: 5%,
Perform relevant calculations and make an informed investment recommendation to Steve including an assessment of the annualised real rate of return provided by the Wakpac Bank.

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The Answer of Steve Howell is seeking to select between 2 fixed-interest securities where all income and capital will be returned at maturity that he has assessed as having the same amount of risk exposure for a 3-year term. He has $10,000 available for immediate investment. Ignore the effects of taxation in any calculations.
The details for each security are as follows:
Security A:
Issuer: Wakpac Bank
Annual nominal compound interest rate: Year 1: 4%, Year 2: 6%, Year 3: 8%
Security B:
Issuer: Fortune Finance
Annual real interest rate: 2.75% compounded for 3 years
It expected that inflation for each of the next 3 years will be as follows:
Year 1: 2.5%, Year 2: 3%, Year 3: 5%,
Perform relevant calculations and make an informed investment recommendation to Steve including an assessment of the annualised real rate of return provided by the Wakpac Bank.

Steve Howell Is Seeking to Select Between 2 Fixed-Interest Securities