The Wall Street Journal Reports That the Current Rate on Five-Year

question 13

Multiple Choice

The Wall Street Journal reports that the current rate on five-year Treasury bonds is 6.45 percent and on 10-year Treasury bonds is 7.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today, E(₅r₅) .

• A) 7.25 percent
• B) 8.12 percent
• C) 9.07 percent
• D) 10.16 percent

---

Definitions:

Debt-Equity Ratio

A financial metric used to evaluate a company's leverage, by calculating the division of its total debts by the equity of its investors.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Times Interest Earned

A financial metric indicating how many times a company can cover its interest payments with its earnings before interest and taxes.

Tax Rate

The proportion, usually expressed as a percentage, at which an individual or corporation is taxed.