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You have a large amount of money to invest for a short term of two years. You have done some market research

and found that an Auckland International Airports bond maturing in one year yields 3%pa., and an Auckland

International Airports bond maturing in two years yields 5%p.a. You are quite confident that because of rising

interest rates, in one year's time the two-year bond (which by then will have one year left until maturity) will yield

7%p.a., Explain whether you should invest in the two-year bond now or buy the one-year bond and renew your

investment in a year's time?