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You are given the following information on the bond market: Money available on January 1, 2004: one thousand dollar interest rates on January 1,...
You are given the following information on the bond market:Money available on January 1, 2004: one thousand dollar interest rates on January 1, 2004, on bonds of different maturities: 1 year, 4%; 2 year, 5%; 3 year, 5.5%; 4 year, 6%Note: Consider these to be bonds at compound the interest at the rate given, that is, the three year bond pays one thousand X 1.055 to the third power at maturity.Expected furture interest rates on the one year bonds:January 2005 6.5%January 2006 7%January 2007 9%Investment horizon: 4 years, ending in January 2008What should an investor buy to yield the largest steam of expeced income over the period from January 1, 2004 to January 1, 2008?
