Risk as well as return analysis of a short term investment

Reference no: EM1316513

You have two short-term risk free investment choices. One is a one year zero coupon Treasury bill, which you can buy today at $950 for each $1000 at maturity. The other is a one year CD which offers a 5% annual rate, compounded semi-annually. Investor is subject to a 35% federal tax and 8% state tax. Federal and state taxes will be paid on CD but only federal will be paid on Treasury bill and it will be paid when it is received, thus at maturity date.

Show a) returns of cash and b) which is the best choice?

Reference no: EM1316513

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