Question 1. The current yield curve for default-free zero-coupon bonds is as follows:

Maturity (years)	YTM % (years)
1	10 %
2	11 %
3	12 %

a) What are the prices of bonds and the implied 1-year forward rates?

b) If you purchase a 2-year zero-coupon bond now, what is the expected total rate of return over the next year assuming zero taxes? What if you purchase a 3-year zero-coupon bond? (Hint: Compute the current and expected future prices.)

c) What should be the current price of a 3-year maturity bond with a 12% coupon rate paid annually?

d) If you purchase it at that price, what would your total expected rate of return be over the next year (remember coupons + price change)? Ignore taxes again.