You observe the following term structure:

	Effective Annual YTM
1-year zero-coupon bond	5.5	%
2-year zero-coupon bond	5.6
3-year zero-coupon bond	5.7
4-year zero-coupon bond	5.8

a. If you believe that the term structure next year will be the same as todays, 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 bond % ??

b. Which bond provides a greater expected 1-year return?

multiple choice

• 1-year zero-coupon bond

• 4-year zero-coupon bond