Problem 2 (20 points) Suppose that a 1-year zero-coupon bond with face value $1000 sells at $930, and a 2-year zero-coupon bond sells at $850 with the same amount of face value. You are considering to purchase a 2-year-maturity bond making annual coupon payments. The face value is $1000 with coupon rate at 8%. (a) Compute the forward rate for the second year f2. (Hint: what are y and y2?) (b) Under the expectations hypothesis, compute the (expected) holding period return on the coupon bond over the first year? (Hint: What is the starting and ending price of the coupon bond during the first year?) (c) Now suppose that the liquidity preference theory is valid in the market, will the (expected) holding period return will be higher or lower? Explain your answer for full credit