Business, 06.10.2019 05:30 xdoran

You have $1,000 to invest over an investment horizon of three years. the bond market offers various options. you can buy (i) a sequence of three one-year bonds; (ii) a three-year bond; or (iii) a two-year bond followed by a one-year bond. the current yield curve tells you that the one-year, two-year, and three-year yields to maturity are 3.5 percent, 4.0 percent, and 4.5 percent respectively. you expect that one-year interest rates will be 4 percent next year and 5 percent the year after that. assuming annual compounding, compute the return on each of the three investments.

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You have $1,000 to invest over an investment horizon of three years. the bond market offers various...

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