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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 5.0% 5.1 5.2

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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 5.0% 5.1 5.2 5.3 a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) 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 bond % b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond O 4-year zero-coupon bond

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