You have a one-year investment horizon with $1,000,000 in hand, and are presented with two fixed-income investment options. Which one provides a higher return? Assume your goal is to maximize returns.

1. Lend at one-year spot rate of 10% for a year.
2. Lend at 6-month spot rate of 8% for the first 6 months, and then lend at a new 6-month rate of 12% for the second 6 months.

All rates above are expressed as bond-equivalent-yields, compounded semi-annually.

Group of answer choices

There is not enough information to evaluate these investments.

Option 2 provides a higher return.

Option 1 provides a higher return.

The two options are equivalent.