Problem $10-40($Algo$)$

The yield curve for default$-$free zero$-$coupon bonds is currently as follows:

Maturity $($years$)$ YTM

$110\mathrm{.}4\%$

$211\mathrm{.}4$

$312\mathrm{.}4$

Required:

What are the implied one$-$year forward rates?

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places.

Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve $($that is$,$ the yields to maturity on one$-$ and two$-$year zero$-$coupon bonds$)$ be next year?

multiple choice

There will be a shift upwards in next year's curve.

There will be a shift downwards in next year's curve.

There will be no change in next year's curve.

What will be the yield to maturity on two$-$year zeros?

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places.

If you purchase a two$-$year zero$-$coupon bond now, what is the expected total rate of return over the next year? $($Hint: Compute the current and expected future prices.$)$ Ignore taxes.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

If you purchase a three$-$year zero$-$coupon bond now, what is the expected total rate of return over the next year? $($Hint: Compute the current and expected future prices.$)$ Ignore taxes.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.