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You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year tero-coupon bond 4-year tero-coupon bond Effective Annual YTM 6.78 6.B 6.9 7.0

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You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year tero-coupon bond 4-year tero-coupon bond Effective Annual YTM 6.78 6.B 6.9 7.0 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 (1) the 4- year zero. (Do not round intermediate calculations. Round your answers to 1 decimal place.) % One year retum on 1-year bond One year return on 4-year bonds % 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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