Finance School of Management Example: Reinvesting at a Different Rate You have $10.000 to invest With the two-year CD for two years F=$10,000×(1.07) Two years CDs and one =$11449 year CDs are paying 7%o and 6% per year With the sequence of respectively two one-year CDs what should you do? .s Reinvestment rate? FV=$10,000×1.06×108 You are sure the interest =$11,448 rate on one-year CDs will be 8% next ye ear uesTc11 Finance School of Management Example: Reinvesting at a Different Rate ❖ You have $10,000 to invest for two years. ❖ Two years CDs and one year CDs are paying 7% and 6% per year respectively. ❖ What should you do? ❖ Reinvestment rate? ❖ You are sure the interest rate on one-year CDs will be 8% next year. ❖ With the two-year CD $11,449 $10,000 (1.07) 2 = FV =  ❖ With the sequence of two one-year CDs $10,000 1.06 1.08 $11,448 FV =   =