Assume that the current yield curve for zero-coupon bonds (spot rates) is as follows: y1 = 0.4%, y2 = 1.0%, y3 = 1.5%. a. What are the implied 1-year forward rates f2 and f3? Assume that there is no uncertainty about future short rates, i.e. that future short rates (future 1 year yields) will be equal to current forward rates (so future short-term interest rates will be equal to f2 and f3). (Hint: fn = ((1+yn) n / (1+yn-1) n-1 ) -1 b. Assume that there is no uncertainty about future short rates, i.e. that future short rates (future 1 year yields) will be equal to current forward rates (so future short-term interest rates will be equal to f2 and f3). In that situation what will be the spot curve (that is, the yields to maturity on 1- and 2-year zero coupon bonds) in 1 year? (Hint: (1+yn) n = (1+yn-1) n-1 (1+fn)) c. What is the price of a 3-year zero coupon bond with par value of 1000 today? d. What is the price of this bond next year (remember, it is then a 2 year zero coupon bond)? What is the rate of return on this bond over the next year?