1. Suppose a U.S. treasury bond will pay $2,500 five years from now. If The going interest rate on 5-year treasury bonds is 4.25%, how much is The bond worth today?
a. $1,928.78 b. $2,030.30 c. $2,131.81 d. $2,238.40 e. $2,350.32
2. . Suppose the real risk-free rate is 3.50% and the future rate of inflation Is expected to be constant at 2.20%. What rate of return would you expect On a 1-year Treasury security, assuming the pure expectations theory is Valid? Disregard cross-product terms, i.e., if averaging is required, Use the arithmetic average.
a. 5.14% b. 5.42% c. 5.70% d. 5.99% e. 6.28%