Suppose today is January 3, 2014, and investors expect the annual risk-free interest rates in 2018 and 2019 to be:

Currently a four-year Treasury bond that matures on December 31, 2017 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) 2018 (a five-year bond) and

(b) 2019 (a six-year bond)? Assume the bonds have no risks.

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Year 2018 2019 One-Year Rate (RF) 4.5% 2.3