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Hubert would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 5 percent and
Hubert would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 5 percent and a two-yea bond that pays 7 percent. Hubert is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 5 percent and in year one, then buy another one-year bond that pays the forward rate in year two. Strategy B: Buy a two-year bond that pays 7 percent in year one and 7 percent year two. If the one-year bond purchased in year two pays 11 percent, and the liquidity premium on a two-year bond is 0.7 percent, Hubert will choose Which of the following describes conditions under which Hubert would be indifferent between Strategy A and Strategy B? The rate on the one-year bond purchased in year two is 7.952 percent. The rate on the one-year bond purchased in year two is 8.371 percent. The rate on the one-year bond purchased in year two is 8.622 percent. The rate on the one-year bond purchased in year two is 8.957 percent
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