2. The spot rates from the Treasury strip and corporate bond (pure discount) yield curves over three years are given below. Spot 1 Year Spot 2 Year Spot 3 Year Treasury strips 3.0% 3.8% 4.5% BBB-rated bonds 6.5 7.5 8.5 a. Using the unbiased expectations theory, calculate the 1-year forward rate on Treasury strips for years two and three. (4 marks) b. Using the unbiased expectations theory, calculate the 1-year forward rate on BBB-rated bonds for years two and three. (4 marks) C. Assume that the loss given default of BBB-rated bonds is 100%, what is the expected default frequency of BBB-rated companies in years one, two, and three? (Hint: The expected returns from investing in BBB-rated bonds should be equal to the expected returns on Treasury strips, since Treasury strips are assumed to be risk free.) (7 marks)