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You have 100 dollars to invest over an investment perios of 3 years. the bond market offers various options. you can buy i) a sequence of three one year bonds. ii) a three year bond. iii) a two year bond followed by a one year bond. the current yield curve tells you that one year, two year, and three year yields to maturity are 3.5 percent, 4.0 percent, and 4.5 percent, respectively. you expect the 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, and discuss which one you would choose.

Financial Management, Finance

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