Bond

A

is a one-year instrument and Bond

B

is a two-year instrument. The bonds have very similar default risk and income tax treatment. Currently, the following yields exist on these bonds.\ \\\\table[[Bond,Yield],[A,

5.25%

Bond A is a one-year instrument and Bond B is a two-year instrument. The bonds have very similar default risk and income tax treatment. Currently, the following yields exist on these bonds. If (holding all else equal) the interest rate that investors expect on one-year instruments next year suddenly increases to 6.25%, investors will become two-year bonds today. This will cause the yield on two-year bonds today to