You Are Given $7700 as a Graduation Gift and You

Essay

You are given $7700 as a graduation gift and you are looking into two high interest investment options. The first option is a bond with a maturity date three years from now that offers 12.25% per year interest, payable annually. The interest can be withdrawn only at the end of year 3. Another option is a tax- free market savings account that offers 11.5% per year interest, and the funds can be withdrawn any time after 2 years. Which is a better alternative on the basis of total interest paid at the end of year 3? Discuss other factors, in addition to interest rates, that should be taken into consideration to justify your investment decision.