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Today (10/13/20), the prices on zero-coupon US Treasury STRIPS are as follows: Maturity Price Effective Annual In years (per $1000 in face value) YTM 1

Today (10/13/20), the prices on zero-coupon US Treasury STRIPS are as follows: Maturity Price Effective Annual In years (per $1000 in face value) YTM 1 985.000 ______________ 2 952.000 ______________ 3 917.500 ______________ 4 871.442 .0350000 5 821.927 .0400000 Questions: a. What are the yields to maturity for each of these zeros? Fill in the banks above. (3 points, 1 point each) b. You think that short-term interest rates will rise over the next year. In particular, you think that the 1-year and the 2-year rates will be higher than they are currently. If you invest in the two-year now and sell it in one year, will your return be higher or lower than what you could get by investing in the one-year and holding it until maturity? If it depends, what does it depend upon? (5 points)

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