Assume the zero-coupon yields on default-free securities are as summarized in the following table:(Click on the following icon

in order to copy its contents into a spreadsheet.)

Maturity (years)	1	2	3	4	5
Zero-coupon YTM	4.70%	5.10%	5.40%	5.60%	5.80%

What is the maturity of a default-free security with annual coupon payments and a yield to maturity of

4.70%?

Why?

Question content area bottom

Part 1

What is the maturity of a default-free security with annual coupon payments and a yield to maturity of

4.70%?

(Select the best choice below.)

A.

One year

B.

Two years

C.

Three years

D.

Four years

E.

Five years

Part 2

Why?(Select the best choice below.)

A.

It must be one year otherwise there will be an arbitrage opportunity.

B.

It must be two years otherwise there will be an arbitrage opportunity.

C.

It must be three years otherwise there will be an arbitrage opportunity.

D.

It must be four years otherwise there will be an arbitrage opportunity.

E.

It must be five years otherwise there will be an arbitrage opportunity.