$2$

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a$.$ Assuming that the expectations hypothesis is valid, compute the expected price of the four$-$year zero coupon bond shown below at

the end of $($i$)$ the first year; $($ii$)$ the second year; $($iii$)$ the third year; $($iv$)$ the fourth year. $($Do not round intermediate calculations. Round

your answers to $2$ decimal places.$)$

b$.$ What is the rate of return of the bond in years $1,2,3,$ and $4?$ Conclude that the expected return equals the forward rate for each

year. $($Do not round intermediate calculations. Round your answers to $2$ decimal places.$)$