Suppose you wanted to lock in an interest rate for an investment that begins in one year and matures in five years . What rate would you obtain if there are no arbitrage opportunitie ities ? Call this rate fis . If we invest for one - year at YTMI , and then for the 4 years from year 1 to 5 at rate fis after five years we would earn KIMI1 fis with no risk No arbitrage means this must equal that amount we would earn investing at the current five year spot rate ( 1 + YTMD) ( 1 + fis ) + ( 1 + TMS ) Therefore (1 + Sis ) = (+ RIMS ) 1045S 1 19825 TIM 04 and so : his = 1 19825 + 4 4. 6250%