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Suppose that a risk - neutral investor has a choice between buying a one - year bond paying 5 percent today, a two - year
Suppose that a riskneutral investor has a choice between buying a oneyear bond paying percent today, a twoyear bond paying percent today, a threeyear bond paying percent today, or a fouryear bond paying percent today, if a oneyear bond purchased one year from now is expected to have an interest rate of percent, a oneyear bond purchased two years from now is expected to have an interest rate of percent, and a oneyear bond purchased three years from now is expected to have an interest rate of percent. Arrange the sequence of bonds giving the interest rate from highest to the lowest. Which bond would the investor buy? Show your work.
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