You are currently faced with two alternative investment opportunities: (a) Invest $1,000 in a one-year bond...

 

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You are currently faced with two alternative investment opportunities: (a) Invest $1,000 in a one-year bond at an interest rate of 8%, then reinvest the proceeds in another one-year bond that is expected to earn an interest rate of 9%. (b) Invest $1,000 in a two-year bond. What would be the two-year interest rate per annum at which you would be indifferent to the choice between the two alternatives? i. 8.2% ii. 8.5% iii. 9.0% iv. None of the above You are currently faced with two alternative investment opportunities: (a) Invest $1,000 in a one-year bond at an interest rate of 8%, then reinvest the proceeds in another one-year bond that is expected to earn an interest rate of 9%. (b) Invest $1,000 in a two-year bond. What would be the two-year interest rate per annum at which you would be indifferent to the choice between the two alternatives? i. 8.2% ii. 8.5% iii. 9.0% iv. None of the above

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The detailed answer for the above question is provided below To find the twoyear interest rate per ... View the full answer