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    Treasury bills (induce to buy)

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    The following pattern for one-year Treasury bills is expected over the next four years:
    Year1, 3%
    Year2, 5%
    Year3, 6%
    Year4, 7%
    a. What return would be necessary to induce an investor to buy a two-year security?
    b. What return would be necessary to induce an investor to buy a three-year security?
    c. What return would be necessary to induce an investor to buy a four-year security?

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    Solution Preview

    A) (3% + 5%) / 2 = 4% for a 2 yr. security.

    B) (3% + 5% + 6%) / 3 = 4.66% for a 3 yr. ...

    Solution Summary

    The following pattern for one-year Treasury bills is expected over the next four years:
    Year1, 3%
    Year2, 5%
    Year3, 6%
    Year4, 7%
    a. What return would be necessary to induce an investor to buy a two-year security?
    b. What return would be necessary to induce an investor to buy a three-year security?
    c. What return would be necessary to induce an investor to buy a four-year security?

    $2.19

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