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

Pure expectations theory: Multi-year periods
Poornima would like to invest a certain amount of money for three years and considers investing in (1) a one-year bond that pays 3 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. Poornima is considering
the following investment strategies:
Strategy A: Buy a one-year bond that pays 3 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 7 percent annually, Poornima will choose
Which of the following describes conditions under which Poornima would be indifferent between Strategy A and Strategy B?
The rate on the two-year bond purchased one year from now is 10.590 percent.
The rate on the two-year bond purchased one year from now is 11.543 percent.
The rate on the two-year bond purchased one year from now is 9.107 percent.
The rate on the two-year bond purchased one year from now is 9.743 percent.
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