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Suppose that an investor is concerned about the value of her investments over the short-term. She is considering one of two investment strategies: (Option A):
Suppose that an investor is concerned about the value of her investments over the short-term. She is considering one of two investment strategies: (Option A): Invest in 1-year U.S. government bond, hold it to maturity, and reinvest the proceeds to a new 1-year bond (30 consecutive times until retirement). If her employment is terminated in a given year, she will hold the current bond to maturity but she won't reinvest the proceeds. (Option B): Invest in a 30-year U.S. government bond today. If her employment is terminated in a given year, then she will sell the bond at that time. O A. The return earned by the investor on Option A is uncertain, you expect to make a positive return on average, but you may earn a negative return in some years. B. Option B corresponds to a risk-free investment and the investors knows today how much she will make over the 30-year period. OC. The return earned by the investor on Option A will always be positive (as long as the yield remains positive), but the total return over the
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