YIELD CURVE FOR ZERO COUPON BONDS RATED AA Maturity YTM Maturity YTM Maturity YTM 1 year 8.00 % 7 year 9.15 % 13 year 10.45 % 2 year 8.11 % 8 year 9.25 % 14 year 10.65 % 3 year 8.20 % 9 year 9.35 % 15 year 10.75 % 4 year 8.50 % 10 year 9.47 % 16 year 10.95 % 5 year 8.75 % 11 year 9.52 % 17 year 11.00 % 6 year 8.85 % 12 year 9.77 % 18 year 11.25 %

Assume that there are no liquidity premiums. To the nearest basis point, what is the expected interest rate on a four-year maturity AA zero coupon bond purchased eight years from today?

Multiple Choice 10.41 percent. 10.05 percent 9.16 percent 10.82 percent 9.96 percent