Suppose that you have only two investment alternatives. One is an interest-bearing asset such as a...
Suppose that you have only two investment alternatives. One is an interest-bearing asset such as a GIC, earning an annual rate of return r. The other is a gold bullion, the unit price of which is pt in year t. Write down the equilibrium condition which must hold if you are to keep some of both assets in your portfolio.
Homework Answers
if you have to choose both then you must get an equal return from them both.
hence rate of return from the interest-bearing asset must be equal to the rate of return on the gold bullion.
hence r={(pt+1-pt)/pt}x100%
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