Chapter 6: Yield Curve

The yield to maturity for a zero, semi-annual coupon bond is 3.4% for a one-year bond, 4.7% for a two-year bond, and 3.1% on a three-year bond. All three bonds come from the same company and have the same risk profile. You think the yield curve will remain the same throughout the future. You wish to make a 1-year investment, that is, buy a bond today and sell it in one year. Which bond should you purchase if you are looking to maximize your average annual return? Buy the two-year bond Buy the three-year bond Buy the one-year bond You are indifferent between each of the bonds. Given the information above, we cannot determine the correct strategy