1. Consider the following two zero coupon bonds with face value of $1000:

-Annual return for 2-year bond is 1.5%

-Annual return for 3-year bond is 2%

Assume the pure expectations theory for the term structure of interest rates

What is the value of the 3-year bond at the end of two years?

-Consider two investment strategies:

1. Buy 2-year zero coupon bond and hold it until maturity
2. Buy 3-year zero coupon bond and sell it at the end of two years

Which strategy will give you higher percentage return?