The annualized interest rates are as follows:

Year 1 2 3 4 5 6 Interest rate 3% 4% 5% 6% 6% 6%

Year 7 8 9 10 11 12 Interest rate 7% 7% 7% 6% 5% 4%

(a) Draw the yield curve.

(b) Compute the 12 n-year compounded holding rates of return from now to year n.

(c) Compute the 12 1-year forward rates of return.

(d) Is there anything wrong in this example?