# Question

(a) The portfolio manager of a tax-exempt fund is considering investing $500,000 in a debt instrument that pays an annual interest rate of 5.7% for four years. At the end of four years, the portfolio manager plans to reinvest the proceeds for three more years and expects that for the three-year period, an annual interest rate of 7.2% can be earned. What is the future value of this investment?

(b) Suppose that the portfolio manager in Question 3, part a, has the opportunity to invest the $500,000 for seven years in a debt obligation that promises to pay an annual interest rate of 6.1% compounded semiannually. Is this investment alternative more attractive than the one in Question 3, part a?

(b) Suppose that the portfolio manager in Question 3, part a, has the opportunity to invest the $500,000 for seven years in a debt obligation that promises to pay an annual interest rate of 6.1% compounded semiannually. Is this investment alternative more attractive than the one in Question 3, part a?

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