Question: QUESTION 4. [{CALCNS (3 + 2 + 3) + (2 + 2) + (2 + 2) = 16 Marks}] A. The yield curve for Government-guaranteed

QUESTION 4. [{CALCNS (3 + 2 + 3) + (2 + 2) + (2 + 2) = 16 Marks}] A. The yield curve for Government-guaranteed zero-coupon bonds is based as follows: Term to maturity (years) Yield to maturity (% per annum)

1 8% 2 9% 3 10%

REQUIRED: i. What are the implied one-year forward rates for years 1, 2 and 3 respectively? ii. If the expectations hypothesis of the term structure of interest rates is correct, in one years time, what will be the yield to maturity on a one-year zero-coupon bond? iii. Based on the same hypothesis as in ii. above, in one years time, what will be the yield to maturity on a two-year zero-coupon bond?

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