Final answer:
An investor comparing two securities would be most interested in the net present value (NPV), as it calculates the value of expected future cash flows, accounting for potential capital gains, dividends, interest rates, and risk. NPV is the most comprehensive measure for evaluating the attractiveness of investment opportunities in bonds.
Step-by-step explanation:
When an investor is analyzing two securities to determine the best investment option, the most crucial factor of interest is the net present value (NPV). NPV is a method used to evaluate the attractiveness of an investment opportunity by calculating the present value of expected future cash flows, including both potential capital gains from the future sale of the security and any dividends that might be paid, discounted at an appropriate rate to reflect the time value of money.
Since the purchase price, dividends, and risk are all embedded within the calculation of NPV, they are considered by the investor indirectly. However, it is the NPV that provides a comprehensive measure of the prospective profitability of each bond, taking into account not only the expected cash flows but also the specific interest rates and risk levels associated with each security.
Bonds vary in their offered rates of return based on the level of risk, which includes components such as the compensation for delaying consumption, adjustments for anticipated inflation, and a premium for risk associated with the borrower. Therefore, the investor will be most interested in calculating the NPV to make the most informed decision regarding which bond to select for investment.