15. Mr. Bennett wants to invest $100,000 for the next 10 years with the following investment strategy.

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15. Mr. Bennett wants to invest $100,000 for the next 10 years with the following investment strategy. The amount will be invested in a defaultfree U.S. government security that matures every month. Every time the security matures, the investor will use the proceeds to invest in another government security with one month to maturity. Suppose further that one-month government securities today pay an interest rate of 5%. In Mr. Bennett’s view, this investment strategy has little risk, because onemonth securities have no price risk if held to maturity and he can lock in at least a 5% return over the next 10 years. Discuss this investment strategy and the risks associated with it.

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Foundations Of Global Financial Markets And Institutions

ISBN: 9780262039543

5th Edition

Authors: Frank J. Fabozzi, Frank J. Jones, Francesco A. Fabozzi, Steven V. Mann

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