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Please answer all parts ! select all that apply for both part A &B and give a brief explanation why you chose! Thanks Suppose the
Please answer all parts ! select all that apply for both part A &B and give a brief explanation why you chose! Thanks
Suppose the interest rates on 1-, 5-, and 10-year Canada bonds are currently 3%, 6%, and 6%, respectively. Investor A is indifferent between holding 5- and 10-year bonds, and Investor B chooses to hold only 1-year bonds. Which of the following statements could explain the behaviour of Investor B? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor B expects will occur over the life of the bond.) (Select all that apply.) A. Investor B is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. B. The liquidity premium that Investor B would require in order to choose a bond with maturity of 5 years or more is less than 3% above that for a 1-year bond. C. Investor B is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. D. Investor B expects average 1-year interest rates over the next 5 and 10 years to be greater than 6% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. E. Investor B expects average 1-year interest rates over the next 5 and 10 years to be less than 6% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. F. The liquidity premium that Investor B would require in order to choose a bond with maturity of 5 years or more is more than 3% above that for a 1-year bond. Which of the following statements could explain the behaviour of Investor A? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor A expects will occur over the life of the bond.) (Select all that apply.) A. Investor A expects average 1-year interest rates over the next 5 years to be less than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. B. The liquidity premium that Investor A would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is less than 3% above that for a 1-year bond. | O C. Investor A is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. D. Investor A is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. E. Investor A expects average 1-year interest rates over the next 5 years to be greater than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. F. The liquidity premium that Investor A would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is more than 3% above that for a 1-year bond. Suppose the interest rates on 1-, 5-, and 10-year Canada bonds are currently 3%, 6%, and 6%, respectively. Investor A is indifferent between holding 5- and 10-year bonds, and Investor B chooses to hold only 1-year bonds. Which of the following statements could explain the behaviour of Investor B? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor B expects will occur over the life of the bond.) (Select all that apply.) A. Investor B is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. B. The liquidity premium that Investor B would require in order to choose a bond with maturity of 5 years or more is less than 3% above that for a 1-year bond. C. Investor B is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. D. Investor B expects average 1-year interest rates over the next 5 and 10 years to be greater than 6% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. E. Investor B expects average 1-year interest rates over the next 5 and 10 years to be less than 6% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. F. The liquidity premium that Investor B would require in order to choose a bond with maturity of 5 years or more is more than 3% above that for a 1-year bond. Which of the following statements could explain the behaviour of Investor A? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor A expects will occur over the life of the bond.) (Select all that apply.) A. Investor A expects average 1-year interest rates over the next 5 years to be less than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. B. The liquidity premium that Investor A would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is less than 3% above that for a 1-year bond. | O C. Investor A is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. D. Investor A is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. E. Investor A expects average 1-year interest rates over the next 5 years to be greater than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. F. The liquidity premium that Investor A would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is more than 3% above that for a 1-year bondStep by Step Solution
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