The current rate of return on a one-year us government, Ask an Expert

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The current rate of return on a one-year U.S. Government security is 3%. The face value of the bond is $1,000. The rate of return on a two-year U.S. Government security, of the same face value is 5%. according to the expectations theory,

Required:

Question: What is the return on a one-year U.S. Government security purchased one year from today?

A) 10.25%

B) 7.04%

C) 7.24%

D) 9.95%

Note: Please provide reasons to support your answer.

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