Question

your broker would like to sell you a security (S1) that will pay you $485 each...

your broker would like to sell you a security (S1) that will pay you $485 each year for the next 7 years (payments at Years 1-7) and will cost you $2,213.42 to purchase. a competing broker would like you to purchase a different security (S2) that will pay you $195 a quarter for the next 8 years (Quarters 1-32) and has promised you an effective annual rate of return that will be 1.9 percent higher (190 basis points) than the effective annual rate of return on the first security. Given this information, determine how much you should have to pay for the second security in order to earn this higher effective rate of return.

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