Suppose the following information is available from the Treasury spot curve:

Three-year spot rate = 3.410%

Four-year spot rate = 3.854%

Answer the following questions.

a. What is the implied forward rate on a one-year zero coupon Treasury three years from now quoted on a bond equivalent basis?

b. Antti Illmanen states, “Whenever the spot rate curve is upward sloping, the forwards imply rising rates. That is, rising rates are needed to offset long-term bonds’ yield advantage. However, it does not mean that the market expects rising rates.” Explain this statement.