Today, an investment you made three years ago has matured and is now worth 3000 rupees. It was a three-yea r deposit that bore an interest rate of 10% per year, compounded monthly. You knew at the time that you were taking a risk in making such an investment because interest rates vary over time and you “locked in” at 10% for three years.
(a) How much was your initial deposit? Plot the value of your investment over the three-year period.
(b) Looking back over the past three years, interest rates for similar one-year investments did indeed van,-. The interest rates were 8% the first year, 10% the second, and 14% the third. Plot the value of your initial deposit over time as if you had invested at this set of rates, rather than for a constant 10% rate. Did you lose out by having- locked into the 10% investment? If so, bv how much?
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