Question: b) Although an expected increase in future short-term interest rate can result in an upward sloping yield curve, an upward sloping yield curve does not

b) Although an expected increase in future short-term interest rate can result in an upward sloping yield curve, an upward sloping yield curve does not necessarily imply that the short-term interest rate is expected to increase. Is this statement correct? Why? (3 marks)

c) You observe the prices of the following zero-coupon bonds with a par value of $1,000. Compute the one-year forward rates for 1) One year from today, 2) Two years from today, and 3) Three years from today, respectively. (Assuming annual compounding). (6 marks) Maturity Bond Price 1 - $892.86 2 - $800.76 3 - $726.27 4 - $683.01

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