ECON 354 Problem Set 3 1. (Total 4 points, 2017 Final) The current yield curve for default-free zero-coupon bond is as follows: Maturity (years) Yield-to-maturity (%) 1% 2% 3% (a) What is the price of three-year zero coupon bond with the par value being $1,000 and the coupon rate being 2%? Assume that this coupon bond has no default risk and that one coupon payment is made every year (b) What are the implied one-year forward rates? (c) What is the expected yield-to-maturity of one-year zero coupon bond next year under the expectation hypothesis? (d) Suppose that investors prefer short-term investment and that the current liquidity premium for the next year is known to be 1%. Then, what is the expected yield- to-maturity of one-year zero coupon bond next year under the liquidity preference hypothesis