Suppose the current yield on a one-year, zero coupon bond is 3%, while the yield on a five-year, zero coupon bond is 4%. Neither bond has any risk of default. Suppose you plan to invest for one year. You will earn more over the year by investing in the five-year bond as long as its yield does not rise above what level?

The Yield Curve and Bond Arbitrage For Problems 17–22, assume zero-coupon yields on default-free securities are as summarized in the following table:

Maturity (years) 1 2 3 4 5 Zero-coupon YTM 4.00% 4.30% 4.50% 4.70% 4.80%

AppendixLO1