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(a) Consider that rate of interest is 10% and you are offered either a discount bond paying you $5,000 in 5 years or a fixed-payment loan paying you $750 per year for 5 consecutive years.

Both the discount bond and the fixed payment loan costs a price of $3,000 today. As a rationale investor, which should you buy: the discount bond or the fixed-payment loan? Justify your decision.

(b) Contrast Pure Risks with Speculative Risks.

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Financial Management, Finance

Category:- Financial Management
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