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Suppose that the term structure today is given as follows: Time to maturity YTM 1 1.2% 2 1.6% 3 2.1% 4 2.9% Suppose your investment
Suppose that the term structure today is given as follows: Time to maturity YTM 1 1.2% 2 1.6% 3 2.1% 4 2.9% Suppose your investment horizon is 4 years, and you are considering buying a coupon bond with par 1000, coupon rate 3%, paying once a year. If you believe in the liquidity preference theory, will your expected realized yield be lower, equal or higher than the one in (a)? Why?
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