Q21: Consider the following spot interest rates for maturities of one, two, three, and four years. (r=rate)

r₁: 4.3% r₂: 4.9% r₃: 5.6% r₄: 6.4%

What are the following forward rates, where f1,k refers to a forward rate for the period beginning in one year? Answer: f₁ = 5.50%

Q22: Based on the spot interest rates in the previous question, what are the following forward rates, where fk,1 refers to a forward rate beginning in k years and extending for 1 year? Answer: f_2.1= 7.01% f_3.1= 8.84%

Following the interest rates in the previous questions:

Expected Inflation Rates (LO4, CFA4) Based on the spot rates in Problem 21, and assuming a constant real interest rate of 2 percent, what are the expected inflation rates for the next four years?

Hint: Use the Fisher hypothesis and the unbiased expectations theory.