John has to decide whether to buy a zero-coupon bond with very little risk that costs $950 and will pay $1085 in one year or put his money in a savings account with an annual interest rate of 12%. Compute the difference in the rate of return of the two investments. Round your answer to one decimal place Which of the two investments will John prefer? O the savings account O the zero-coupon bond

Different is favorable to the zero-coupon by 2.2%

I would prefer to invest in the zero-coupon as their yield is higher

Explanation:

we divide the future value of the zero coupon with ther current market value to determinate the rate

r = 0,14210 = 14.2%

the saving account yields 12% which is lower than the zero coupon rate thereofre I would be better to ivnest in the zero-coupon.

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