The current yield curve for default-free zero-coupon bonds is as follows:

Maturity (years)

YTM

1

11.0

%

2

12.0

3

13.0

What are the implied one-year forward rates?

maturity (years) YTM forward rate

1 11.00%

2 12.00% ?

3 13.00% ?

c-1. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected total rate of return

If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected total rate of return