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You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual YTM 6.5% 6.6 6.7 6.8

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You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual YTM 6.5% 6.6 6.7 6.8 a. If you believe that the term structure next year will be the same as today's, calculate the return on (i) the 1- year zero and (ii) the 4-year zero. (Do not round intermediate calculations. Round your answers to 1 decimal place.) One year return on 1-year bond One year return on 4-year bonds 6.5% : % b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond 4-year zero-coupon bond

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