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Pure expectations theory: Multi - year periods Juanita would like to invest a certain amount of money for three years and considers investing in (

Pure expectations theory: Multi-year periods
Juanita would like to invest a certain amount of money for three years and considers investing in (1) a one-year bond that pays 4 percent, followed by
a two-year bond that pays the forward rate, or (2) a three-year bond that pays 8 percent in each of the next three years. Juanita is considering the
following investment strategies:
Strategy A: Buy a one-year bond that pays 4 percent in year one, then buy a two-year bond that pays the two-year forward rate in
years two and three.
Strategy B: Buy a three-year bond that pays 8 percent in each of the next three years.
If the two-year bond purchased one year from now pays 9 percent annually, Juanita will choose
Which of the following describes conditions under which Juanita would be indifferent between Strategy A and Strategy B?
The rate on the two-year bond purchased one year from now is 10.057 percent.
The rate on the two-year bond purchased one year from now is 10.560 percent.
The rate on the two-year bond purchased one year from now is 10.962 percent.
The rate on the two-year bond purchased one year from now is 9.252 percent.
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