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1. WSJ reports that interest rates on 4-year Treasuries are currently rT4= 4.82% and 6-year Treasuries are rT6= 4.15%. Assume that the pure expectations theory is valid. Determine what 2-year Treasuries will be yielding 4 years from now (find4rT2). Show your work.

2. You are considering buying an IBM bond. The bond has an 8% fixed-rate semiannual coupon and $1,000 face value. The bond is scheduled to mature in 9 years and has a price of $1,150. It is also callable in 5 years at a call price of $1,040. For part a and b, show your calculator keystrokes where appropriate.

a) What is the bond's nominal yield to maturity (find the annual rate)?

b) What is the bond's nominal yield to call (find the annual rate)?

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