The following table depicts current market conditions (assume annual compounding): Year Current spot rates (ru) Implied 2-year forward rate (ft,2) 3 2.00% 4 3.00% 5 3.80% 6 4.00% N/A 7 4.10% N/A (a) Calculate implied 2-year forward rates ($3,2, $4,2, f5,2). (b) According to your analysis on the market condition, propose a strategy that goes long a zero coupon bond and goes short another zero coupon bond. For simplicity, use only zero coupon bonds (C) According to (b), we will go long a m-year zero coupon bond and go short a n-year zero coupon bond. From mathematical analyses, we already know that the m-year zero coupon bond outperforms the n-year zero coupon bond whenever the forward rate between the m- and n-year bond rises after 1 year. Here are our scenarios: n-year spot rates (rn) y % Current State Steepening Parallel Shift Flattening m-year spot rates (rm) x% x % x + 0.3% x + 0.3% y + 0.5% y + 0.3% y + 0.1% In which situation(s) do we make a profit from our strategy? The following table depicts current market conditions (assume annual compounding): Year Current spot rates (ru) Implied 2-year forward rate (ft,2) 3 2.00% 4 3.00% 5 3.80% 6 4.00% N/A 7 4.10% N/A (a) Calculate implied 2-year forward rates ($3,2, $4,2, f5,2). (b) According to your analysis on the market condition, propose a strategy that goes long a zero coupon bond and goes short another zero coupon bond. For simplicity, use only zero coupon bonds (C) According to (b), we will go long a m-year zero coupon bond and go short a n-year zero coupon bond. From mathematical analyses, we already know that the m-year zero coupon bond outperforms the n-year zero coupon bond whenever the forward rate between the m- and n-year bond rises after 1 year. Here are our scenarios: n-year spot rates (rn) y % Current State Steepening Parallel Shift Flattening m-year spot rates (rm) x% x % x + 0.3% x + 0.3% y + 0.5% y + 0.3% y + 0.1% In which situation(s) do we make a profit from our strategy