5-4: Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates in 2026 and 2027 to be: Year 2026 2027 One-Year Rate (IRE) 4.5% 2.3% Currently a four-year Treasury bond that matures on December 13, 2025 has an interest rate that equal to 2.5 percent. What is the yield on Treasury bonds that mature at the end of (a) 2026 (a five- year bond) and (b) 2027 (a six-year bond)? Assume the bonds have no risk. (LO 5-3)
5-4: Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates in 2026 and 2027 to be: Year 2026 2027 One-Year Rate (IRE) 4.5% 2.3% Currently a four-year Treasury bond that matures on December 13, 2025 has an interest rate that equal to 2.5 percent. What is the yield on Treasury bonds that mature at the end of (a) 2026 (a five- year bond) and (b) 2027 (a six-year bond)? Assume the bonds have no risk. (LO 5-3)
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 15PROB
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Transcribed Image Text:5-4: Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest
rates in 2026 and 2027 to be:
Year
2026
2027
One-Year Rate (IRE)
4.5%
2.3%
Currently a four-year Treasury bond that matures on December 13, 2025 has an interest rate that
equal to 2.5 percent. What is the yield on Treasury bonds that mature at the end of (a) 2026 (a five-
year bond) and (b) 2027 (a six-year bond)? Assume the bonds have no risk. (LO 5-3)
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