Finance Assignment | Professional Writing
Consider a mean-variance optimizer that wants to invest in bonds for two periods. In order for them to be indifferent between a two-year bond and rolling over two one year bonds, what must the liquidity premium equal?
What if they want to invest in N periods and are indifferent between an N period bond and an N – 1-period bond rolled over into a one-period bond? What must the liquidity premium equal then?
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