(Torm structure of Interest rates) You want to invest your savings of $21,000 in government securities for the next 2 years. Currently, you can invest either in a security that pays interest of 7,9% per year for the next 2 years or in a security that matures in 1 year but pays only 6.4% 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 1-year security that pays an interest rate of only 6.4%, as opposed to investing in the 2-year security paying 7.947 Provide numerical support for your answer. Which theory of term structure have you supported in your answer? b. Assumo your required rate of rotum on the second-year investment is 10.4%; otherwise, you will choose to go with the 2-year security. What rationale could you off for your preference? If you choose to invest in tho 1.year security, tipe value of your savings after the first year will be $ [] (Round to the nearest dollar) How much interest must the 1-year security cam after its renewal in the second year in order for your account to equal the 2-year investment? To do as well as you would with the first choice, during tho second year the 1-year security would have to earn $ (Round to the nearest dollar) In order for the investment in the 1-year security to equal the 2-year investment, how much should the renewal rate on the 1-year security be? The required interest rato during the second year is % (Round to one decimal place.) Thus, you would invest in the 1-year security paying 64% only if you believed you could earn at least 0.4% in the second year on a security issued at the beginning of the second year. The foregoing logic is based on the expectations theory of term structure of interest rates." Is the above statement true or false? (Select from the drop-down menu.) b. Assume your required rate of return on the second-year investment is 10.4%; otherwise, you will choose to go with the 2-year security. What rationale could you offer for your preference? "If you require an 10.4% rate on the second one-year investment, then the expectations theory is not explaining fully the term structure of interest rates. The expectations theory suggests you should accept 9.4% in year two. Thus, you are requiring a liquidity risk premium on the second year investment to compensato for the uncertainty of the future interest rates in your two." In the above statement true or falso? (Solect from the drop-down menu)