QUESTION 7 1 poi Suppose that the spot interest rate on a one-year zero-coupon bond is 1% and the spot interest rate on a two-year zero-coupon bond is 2%. If you expect the one-year interest rate starting in one year to be 1%, what is the optimal investment strategy for a two-year investment? a. Buy a two-year bond b. Buy a one-year bond and plan to buy a second one-year bond next year QUESTION 8 1 poi Suppose that the spot interest rate on a one-year zero-coupon bond is 1%, and the spot interest rate on a two-year zero-coupon bond is 2%. Suppose also that you expect the one- year interest rate starting in one year to be 1%. Relative to the market expectations, do you think a recession is more likely or less likely? a. More likely b. Less likely QUESTION 9 1 poi Suppose that the current one-year zero-coupon rate is 1.5% and that the expected one-year rate during each of the subsequent 4 years is 2.0%, 2.5%, 3.09, and 3.5%. Under the pure expectations theory, what is the current 2-year zero-coupon interest rate? Use the approximation from class. QUESTION 7 1 poi Suppose that the spot interest rate on a one-year zero-coupon bond is 1% and the spot interest rate on a two-year zero-coupon bond is 2%. If you expect the one-year interest rate starting in one year to be 1%, what is the optimal investment strategy for a two-year investment? a. Buy a two-year bond b. Buy a one-year bond and plan to buy a second one-year bond next year QUESTION 8 1 poi Suppose that the spot interest rate on a one-year zero-coupon bond is 1%, and the spot interest rate on a two-year zero-coupon bond is 2%. Suppose also that you expect the one- year interest rate starting in one year to be 1%. Relative to the market expectations, do you think a recession is more likely or less likely? a. More likely b. Less likely QUESTION 9 1 poi Suppose that the current one-year zero-coupon rate is 1.5% and that the expected one-year rate during each of the subsequent 4 years is 2.0%, 2.5%, 3.09, and 3.5%. Under the pure expectations theory, what is the current 2-year zero-coupon interest rate? Use the approximation from class