Importance of Alternative Investment Discussion

Category: Business & Finance

Question Description

I don’t understand this Business question and need help to study.

Suppose you want to send $100 to the future. You can choose to invest in capital (through the stock market) or to buy government bonds. Suppose that at an interest rate of 2%, you decide to split the $100 equally between stocks and bonds. What would you do that?

Recall that the interest rates set the returns from savings, which are made possible by buying government bonds. Buying stocks is equivalent to investment as you are lending income to firms to invest in capital.

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