Compare a two-year bond with two successive one-year bonds in a situation in which an investor buys a one-year bond today and then another one-year bond when the first matures. Suppose that the two-year bond has an interest rate of 8 percent each year.
Please provide solutions with the values, the one already posted is confusing and hard to read. Thank you.
If $1000 is invested in a two-year bond today, the amount received after two years = $1000 * (1 + 8%) * (1 + 8%) = $1166.40
i]
If $1000 is invested today, the amount received after two years = $1000 * (1 + 7%) * (1 + 9%) = $1166.30
ii]
If $1000 is invested today, the amount received after two years = $1000 * (1 + 5%) * (1 + 11%) = $1165.50
iii]
If $1000 is invested today, the amount received after two years = $1000 * (1 + 3%) * (1 + 13%) = $1163.90
iv]
If $1000 is invested today, the amount received after two years = $1000 * (1 + 0%) * (1 + 16%) = $1160.00
Compare a two-year bond with two successive one-year bonds in a situation in which an investor...
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