Question:
(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.
(c) Describe the characteristics of money markets and provide five examples of money market instruments.