Question: Problem 1 : Follow the ( Y i e l d ) Curve Suppose that the yield curve for the next 3 years i s

Problem 1: Follow the (Yield) Curve
Suppose that the yield curve for the next 3 years is given by(there are no liquidity premia):
Maturity Spot Rate
110%
212%
314%
1. Calculate the forward rate for one year, one year from now f1,1.
2. Calculate the forward rate for two years, one year from now f2,1.
3. Calculate the forward rate for one year, two years from now f1,2.
4. According to the Expectations Theory, interest rates are expected to increase, decrease or
remain stable in the future?

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