Prices of zero coupon bonds reveal the following forward rates: Yr Forward Rate 1 5% 2 7% 3 8% In addition to the zero coupon bonds, investors may also purchase a 3-yr coupon bond making annual payments of $60 with par value of $1000. A. Under expectations hypothesis, what is the expected realized compound yield of the coupon bond? B. Suppose that you predict the yield curve in 1 year and onward will be flat at 7%. Can you conduct an arbitrage? What will be your profit? C. Assuming conditions in B, what is your forecast for the expected rate of return for the 1 year holding period? (10 points) Prices of zero coupon bonds reveal the following forward rates: Yr Forward Rate 1 5% 2 7% 3 8% In addition to the zero coupon bonds, investors may also purchase a 3-yr coupon bond making annual payments of $60 with par value of $1000. A. Under expectations hypothesis, what is the expected realized compound yield of the coupon bond? B. Suppose that you predict the yield curve in 1 year and onward will be flat at 7%. Can you conduct an arbitrage? What will be your profit? C. Assuming conditions in B, what is your forecast for the expected rate of return for the 1 year holding period? (10 points)