Year	Spot Rates
1	2%
2	3%
3	4%
4	5%

Assume that, for each maturity, there is a zero-coupon bond traded in the market. These zeroes pay $1000 at their respective maturity

a. Is the term structure positive, inverted, or flat?

b. What is the forward rate from t=1 to t=2?

c. Suppose that the investor is expecting to receive $1 million at t=1. This is a future cash inflow. He is planning to do the following investment strategy for this future cash inflow. He will borrow $980392.16 (this is $1 million / (1+2%)) now and use this borrowing to buy a two-year zero. At t=1, the one-year zero matures, and he will make the payment to the one-year zero lenders. At t=2, the two-year zero matures, and he will receive the payment from the two-year zero. Fill in the below cash flow table (the unit is $1 million).

	t=0	t=1	t=2
One-year zero
Two-year zero
Others (the $1 million that the investor is expecting to receive at t=1)
Total

d. What is the net return that this investor will get from his $1 million future cash flow from t=1 to t=2? Compare it with the forward and comment on what you find