A One Year Treasury Bill Has a Yield of 5

question 22

Multiple Choice

A one year Treasury bill has a yield of 5%. A bond will pay $40 at the end of year one and $1,040 at the end of year 2. If its market value is $946.50, the two-year spot rate is

• A) 9%.
• B) 5%.
• C) 7%.
• D) 6%.