In the real world, the yield curve typically slopes up, meaning a long-term bond often has a higher YTM than a short-term bond. Keep in mind that the YTM is annualized. Why would any investor buy short-term bonds? Use the following example to facilitate your answer.

Suppose that 1-year Treasury bonds yield 5% while 2-year bonds yield 6%. If you have $1,000 to invest for 2 years. Compare the following alternatives:

• A: Buy the 2-year bond
• B: Buy two consecutive 1-year bonds

Would the higher yield on 2-year bonds cause you to prefer them? Why would anyone choose B?