Q1 One-year T-bill rates are expected to steadily increase by 1.5% per year over the next six years.Determine the required interest rate on a five-year T-bond if the current interest rate on one-year Treasury bonds is 5.2%. Assume that the expectations hypothesis for interest rates holds.

Q2 The duration of a $139 million portfolio is 11 years. Added to the portfolio are $57 million in new securities, these added securities have a duration of 18 years. If the interest rates increase from 5% to 5.5%, what will be the change in value (in million dollars) of the combined portfolio?

Q3 An investor purchased a bond at par today with a face value of $1,000. The bond pays annual coupons at a rate of 8%. What is the bond's rate of return if the investor sells the bond one year later for $144 more than the buying price.

Q4 Predict the one-year rate, one years from today, if the interest rates are 3.6% and 4.9% for bonds with one and two years to maturity and the respective liquidity premiums are 0% and 0.4%.