Question: urrent 1-yr interest rate is 12%. Forward rate during 2nd year is 9% and is expected to rise by 0.5% each of the next 3

urrent 1-yr interest rate is 12%. Forward rate during 2nd year is 9% and is expected to rise by 0.5% each of the next 3 years. Calculate YTM for 2-yr, 3-yr, and 4-yr bond. Draw the yield curve and explain its shape using appropriate theory of term structure.

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