Tommy is examining some risk-free Singapore government securities. The yields to maturity on three government bonds with maturities of 1, 2 and 3 years are respectively 3%, 4% and 6%. The bonds all pay an annual coupon and have the same coupon rate of 1% and a face value of $1,000.

(b) (i) Calculate the expected 1-year interest rate for year 2. (ii) Calculate the expected 1-year interest rate for year 3.

Tommy does not understand why yields differ among Singapore government securities and when compared to the yields on securities issued by other governments. Explain why this might be the case.Tommy does not understand why yields differ among Singapore government securities and when compared to the yields on securities issuedby other governments. explain why this might be the case.