The 3-year spot rate is 1.724%, the 4-year spot rate is 2.669% and the 4-year par yield is 2.614%.

All rates are compounded annually, and all coupons paid annually.

1. Calculate the forward rate between years 3 and 4.
2. Calculate the price of a 4-year zero coupon bond and the price of a 4-year bond with a coupon of 4%.
3. Suppose you buy a 4-year zero coupon bond today. What is the expected price of the bond in three years' time if the Expectations Hypothesis holds?
4. If the actual price of the bond in three years' time is the expected price you calculated in part (c), what rate of return would one earn if one bought the 4-year zero coupon bond today, and sold it in three years' time? Comment on how this compares with the 3-year spot rate of interest.