Chapter 4 Homework (Powered by Aplia) Kate would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 4% and a two-year bond that pays 7%. Kate is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 4% and in one year buy another one-year bond. Strategy B: Buy a two-year bond that pays 7% this year and 7% next year. If the one-year bond that Kate can purchase in one year pays 9%, Kate will choose (Note: Assume there is no compounding.) Strategy B On the following graph, use blue points (circle symbol) to draw the yield curve for t that Kate can purchase today. Strategy A 10 9 8 7 8 4 3 2 1 Term Yield curve Which of the following describes conditions under which Kate would be indifferent between Strategy A and Strategy B? O O O O The rate on the two-year bond is 10%. The rate on the one-year bond purchased in one year is 1%. The rate on the one-year bond purchased in one year is 10%. The rate on the two-year bond is 1%