The Following Represents Two Yield Curves -What Interest Rate Is Expected on a One-Year B-Rated Corporate

The following represents two yield curves. $$\begin{array} { | l | c | c | } \hline \text { Maturity } & \begin{array} { c } \text { Pure Discount } \\\text { Treasury Yields }\end{array} & \begin{array} { c } \text { B-rated Corporate Bond Yields } \\\text { (Pure Discount Bonds) }\end{array} \\\hline 1 \text { year } & 3 \text { percent } & 6 \text { percent } \\\hline 2 \text { year } & 6 \text { percent } & 10 \text { percent } \\\hline 20 \text { year } & 12 \text { percent } & 17 \text { percent } \\\hline\end{array}$$
-What interest rate is expected on a one-year B-rated corporate bond in one year? (Hint: Use the implied forward rate.)

A) 10.0 percent.
B) 9.09 percent.
C) 14.15 percent.
D) 12.0 percent.
E) 17.0 percent.

Correct Answer:

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