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Category > Business & Finance Posted 20 May 2017 My Price 11.00

Suppose that you have $1,000

Suppose that you have $1,000 to invest in the bond market on January 1, 2012. You could buy a one-year bond with an interest rate of 4%, a two-year bond with an interest rate of 5%, a three-year bond with an interest rate of 5.5%, or a four-year bond with an interest rate of 6%. You expect interest rates on one-year bonds in the future to be 6.5% on January 1, 2013, 7% on January 1, 2014, and 9% on January 1, 2015. You want to hold your investment until January 1, 2016. Which of the following investment alternatives gives you the highest return by 2016: (a) Buy a four-year bond on January 1, 2012; (b) buy a three-year bond January 1, 2012, and a one-year bond January 1, 2015; (c) buy a two-year bond January 1, 2012, a one-year bond January 1, 2014, and another one-year bond January 1, 2015; (d) buy a one-year bond January 1, 2012, and then additional one-year bonds on the first days of 2013, 2014, and 2015?

 

 

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Status NEW Posted 20 May 2017 09:05 AM My Price 11.00

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