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

Maturity (Years) YTM 1 5% 2 4% 3 3% 4 2%

a. What are the implied 1-year forward rates for year 2, year 3, and year 4? (3 points) b. Assume that the pure expectations hypothesis of the tern structure is correct. If market expectations are accurate, what will be the pure yield curve (i.e., the YTM on 1-year, 2-year and 3-year zero-coupon bonds) next year? (3 points) c. If you purchase a 3-year zero-coupon bond now, what is the expected total rate of return over the next year? What if you purchase a 4-year zero-coupon bond? (4 points) d. What should be the current price of a 4-year maturity bond with a 3% coupon rate paid annually? If you purchased it at that price, what would your total expected rate of return be over the next year (coupon plus price change)? (5 points)