The yields on 1-year, 2-year and 3-year, risk-free, zero-coupon bonds are 4%, 3% and 2%, respectively.

a) (10 points) What are the 1-year and 2-year forward rates (f1 and f2)?

b) (5 points) What does the expectations hypothesis tell us about the future 1-year spot interest rate one year after?

c) (5 points) What does the expectations hypothesis tell us about the future 1-year spot interest rate two years after?