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Using the expectations theory of the term structure, it is better to invest in one-year bonds, reinvested over two years, than to invest in a
Using the expectations theory of the term structure, it is better to invest in one-year bonds, reinvested over two years, than to invest in a two-year bond, if interest rates on one-year bonds are expected to be the ame in both years." Is this statement true, false, or uncertain? A. False: These investments are almost of the same profitability. B. True: The expected return on one-year bonds, reinvested over two years, is always higher at amount itit+1e. c. Uncertain: The answer depends on whether we can ignore the (i2t)2 and itit+1e values
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