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EX 4. Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates in 2026 and 2027 to be: Year One-Year

EX 4. Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates in 2026 and 2027 to be:

Year One-Year Rate (rRF)
2026 5.0 %
2027 4.0

Currently, a four-year Treasury bond that matures on December 31, 2025 has an interest rate equal to 1.5 percent. Assume the bonds have no risk.

What is the yield on Treasury bonds that mature at the end of 2026 (a five-year bond)? Round your answer to one decimal place.

%

What is the yield on Treasury bonds that mature at the end of 2027 (a six-year bond)? Round your answer to one decimal place.

%

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