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Suppose the current yield on a one-year zero-coupon bond is 3 % , while the yield on a five-year zero-coupon bond is 5 % .
Suppose the current yield on a one-year zero-coupon bond is 3 %
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while the yield on a five-year zero-coupon bond is 5 %
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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? (Assume $ 1
face value bond.) Hint: It is best not to round intermediate calculations - make sure to carry at least four decimal places in intermediate calculations.
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