One-year securities are currently yielding 8 percent. You expect one-year securities to yield 10 percent next year. Currently, two-year securities are yielding 9.5 percent. Given this situation, portfolio managers would __________ two-year securities, pushing their yield __________.

Question

Quizplus · Accepted Answer

Portfolio managers would buy two-year securities because they offer a higher yield compared to the expected yield of one-year securities next year. This increased demand for two-year securities would push their yield down.

One-Year Securities Are Currently Yielding 8 Percent