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Suppose you are contemplating between purchasing one two-year bond today versus purchasing two consecutive one-year bonds. Based on the video, which of the following describes
Suppose you are contemplating between purchasing one two-year bond today versus purchasing two consecutive one-year bonds. Based on the video, which of the following describes what would make you indifferent between the two options? The sum of what two one-year bonds pay today is equal to what a two-year bond pays today. What a two-year bond pays today is equal to the sum of what two one-year bonds pay one year from now. The average of what a one-year bond pays today and what you expect a one-year bond will pay in one year from today is equal to what a two-year bond pays today. The sum of what a one-year bond pays today and what you expect a one-year bond will pay in one year from today is equal to what a two-year bond pays today. Suppose that a 1-year Treasury bond currently yields 5.00%, and a 2-year bond yields 5.50%. As an investor, you have two options: Option 1: Buy a 2-year security and hold it for 2 years. Option 2: Buy a 1-year security, hold it for 1 year, and then at the end of the year reinvest the proceeds in another 1-year security. In two years, Option 1 will yield the following amount per $1 you invested: Make the necessary calculations and complete the following table using the data on the securities yields and the pure expectation theory
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