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

Maturity (years)	YTM
1	9.5	%
2	10.5
3	11.5

a. What are the implied one-year forward rates? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Maturity (years)	YTM		Forward Rate
1	9.5	%
2	10.5	%	%
3	11.5	%	%

b. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve (that is, the yields to maturity on one- and two-year zero-coupon bonds) be next year?

	There will be a shift upwards in next year's curve.
	There will be a shift downwards in next year's curve.
	There will be no change in next year's curve.

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 %

c-2. 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 %

The curent yicid auve for dataut-troe zcro-coupon honds is as fallows 9 5% 10.5 11.5 a, v hat are the Impllod ond-year orward rates? (Do not round Intermediate calculations, Round your answers to 2 declmal places.) Maturily eara) Furwerd Rsl 9.5% 10.5% 11.5% 11 41% .As that the prerxpectatians hypatheesis at the tem srucre is earrect market expahores ate aurate, what w'll thee pare yield curve theat is, th yelds ta maturity on r-an tw-year roupn bines) be rvext yar? There wil be shift upwards n next year's curve There wil be nu change i nel yeer's curve. e-1. Ir you purchase a two-year zero-coupon bond now, what is the expectec total rate ofretum over the next year? (nt Compute the current and expected uture pries.)ignore taxes. Do not round intermediate calculations. Round your answer to 2 decimal places) Expected satal rate of retun 2. If you purchasc a 1hroc-yoar zon coupon bond now, what is the oxpccto total toof m o ertho nc ycar? H om utethc cur ont and c poc od tru c pnccs gno c ta cs Do not round inte mediate calculations Round your ansv erto 2 decinal places. ont and expoctod utur