# Question: Suppose today is January 2 2015 and investors expect the

Suppose today is January 2, 2015, and investors expect the annual risk-free interest rates in 2019 and 2020 to be:

Year One-Year Rate (rRr)

2019 4.5%

2020 2.3

Currently, a four-year Treasury bond that matures on December 31, 2018 has an interest rate equal to 2.5 percent. What is the yield to maturity for Treasury bonds that mature at the end of (a) 2019 (a five-year bond) and (b) 2020 (a six-year bond)? Assume the bonds have no risks.

Year One-Year Rate (rRr)

2019 4.5%

2020 2.3

Currently, a four-year Treasury bond that matures on December 31, 2018 has an interest rate equal to 2.5 percent. What is the yield to maturity for Treasury bonds that mature at the end of (a) 2019 (a five-year bond) and (b) 2020 (a six-year bond)? Assume the bonds have no risks.

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