The federal government recently announced that the budget deficit for fiscal year 2016 (the year that ran from October 1, 2015 to September 30, 2016) was $616 billion. Of the $3.95 trillion in total spending, $215 billion was spent on interest expense. At the end of the fiscal year, the total federal debt outstanding was $17.4 trillion.

a)To finance the budget deficit, the federal treasury issued 30-year bonds recently. The bonds have a $10,000 face value and an annual coupon rate of 2.25% with semi-annual coupons so they pay coupons of $112.50 every April 30 and October 31 from 2017 until 2046. The bonds sold for $9,370. What was the yield to maturity on the bonds?

b)Even though Treasury does not have two year bonds outstanding (for purposes of this example), imagine that similar securities suggest that a two-year Treasury bond would have a yield of 1.12%. What does that imply will be the one-year rate on a one-year Treasury issued one year from now? If the debt at the beginning of fiscal year 2018 was expected to be $18 trillion and the US government maintained the mix of 70% one-year and 30% 30-year debt at the yield found in (a), what is your estimate of what federal interest expense will be in 2018?