1. The following are current prices of zero-coupon bonds: (assume par values are all $1,000) Maturity (years) Price 1 2 3 943.40$ 881.60$ 824.10$ 4 767.77$ a. What is the YTM of three-year zero-coupon bonds? b. What is the zero yield curve out to 4 years? (i.e. spot rates for 1, 2, 3 and 4 years) C. What is the price of 2-year bonds paying a 7% coupon? What is the bonds' YTM? d. What is the one-year forward rate for next year? e. f. If you purchase a bond as in (c) today, what is the expected return on your investment in the first year if the one-year rate next year equals today's forward rate? (as calculated in (d)) What will be the return on your investment if the realized one-year rate next year is 6%? g. What is the expected return on your investment in the first year if the market requires a 1% liquidity premium on a 2-year investment? h. According to the Expectations Hypothesis, what is the expected future short rate in the third year (i.e. in two years' time)?