Nick would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 5 percent and a two-year bond that pays 8 percent. Nick is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 5 percent and in year one, then buy another one-year bond that pays the forward rate in year two. Strategy B: Buy a two-year bond that pays 8 percent in year one and 8 percent year two. If the one-year bond purchased in year two pays 8 percent, and the liquidity premium on a two-year bond is 0.5 percent, Nick will choose Which of the following describes conditions under which Nick would be indifferent between Strategy A and Strategy B? O The rate on the one--year bond purchased in year two is 10.080 percent. O The rate on the one-year bond purchased in year two is 10.610 percent. O The rate on the one year bond purchased in year two is 10.928 percent. O The rate on the one year bond purchased in year two is 11353 percent.

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing t…