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( Term structure of interest rates ) You want to invest your savings of $ 2 2 comma 0 0 0 2 2 , 0

(Term structure of interest rates) You want to invest your savings of $22 comma 00022,000 in government securities for the next 22 years. Currently, you can invest either in a security that pays interest of 8.28.2% per year for the next 22 years or in a security that matures in 11 year but pays only 5.95.9% interest. If you make the latter choice, you would then reinvest your savings at the end of the first year for another year.
a. Why might you choose to make the investment in the 11-year security that pays an interest rate of only 5.95.9%, as opposed to investing in the 22-year security paying 8.28.2%? Provide numerical support for your answer. Which theory of term structure have you supported in your answer?
b. Assume your required rate of return on the second-year investment is 11.611.6%; otherwise, you will choose to go with the 2 dash year2-year security. What rationale could you offer for your preference?

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