4. YIELD CURVES Assume that three annual-pay coupon bonds in a market are each priced at Par i.e., 100). The first is a 1-year bond with a coupon of 1.50%; the second is a 2-year bond with a coupon of 2.00%, and the third is a 3-year bond with a coupon of 2.75%. A bond magician uncovers the market's implied discount function to be as follows: PV 0.98522; PV2-0.96107; and PV 0.92115. In this market, what should be the price of a 3-year, 9.00% coupon bond? Translate these three PVs into their three associated "Spot Yields": y, y2, & y3. Find the forward rates y12(i.e., the one-year rate priced to begin one year from now) and y23 (i.e., the one-year rate priced to begin two years from now). Suppose that you think the Central Bank will raise the 1-year rate to about 2.50% next year and then to 3.75% the following year and also suppose that you investment horizon is 3 years. From your very specific point of view, choose one of two strategies: "Buy the 2.00% 2-year bond with a plan to reinvest for the final 1-year at your expected 3.75%" o or o "Buy the 2.75% 3-year bond." Identify your chosen strategy and explain the reason for your choice