(c) If you have just purchased a 4-year zero coupon bond, what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same? (5 marks)

Suppose that all investors expect the following pattern of interest rates: Year 0 Forward Interest Rate (spot, today) 5% 7% 9% 10% 1 2 3 Assuming the par value of bonds is $1000