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Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 4 percent today, a two-year bond paying 5 percent today, a three-year bond paying 5.3 percent today, or a four-year bond paying 5.5 percent today, if a one-year bond purchased one year from now is expected to have an interest rate of 5.5 percent, a one-year bond purchased two years from now is expected to have an interest rate of 6 percent, and a one-year bond purchased three years from now is expected to have an interest rate of 7 percent. The investor would buy

a. a one-year bond today.

b. a two-year bond today.

c. a three-year bond today.

d. a four-year bond today.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91228528

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