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

Maturity (Years)	YTM
1	8%
2	9%
3	10%

All bonds considered in this question have a face value of $1,000. Assume that the pure expectations hypothesis of the term structure holds.

a. If market expectations are accurate, what are the expected yields to maturity on 1- and 2-year zero coupon bonds next year?

(3 marks)

b. If you purchase a 3-year zero-coupon bond now, what is the expected total rate of return over the next year assuming that you will sell the bond at the expected price (price that matches the expected yield in part a))? Ignore taxes.

(3 marks)

c. What should be the current price of a 3-year maturity bond with a 12% coupon rate paid annually?

(3 marks)

d. If you purchase the coupon bond at the price you calculated in part c), what would your total expected rate of return over the next year be (coupon plus price change)? Ignore taxes.

(3 marks)