1 2 4 5 On February 22, 2021, the Bank of England provided the following information on the yield curve Maturity 3 RT 0.07% 0.21% 0.32% 0.43% 0.54% rreal -2.59% -2.55% -2.49% where Re are the spot rates, ie. the yield to maturity of a bond with T years to maturity and r is the expected one period real interest rate for period t. (a) (6 points) Calculate the implied forward curve, containing the future expected one period interest rates. (b) (4 points) Using the information above and the data provided, calculate the implied future inflation for year 3, 4 and 5. (c) (6 points) How do your answers in part (a) and (b) change if you assume a risk premium of 0.05% per annum, i.e. k, = 0%, ka = 0.05%, ..., ks = 0.2%. (d) (4 points) Based on your answers above, what are your predictions for UK monetary policy in the next five years. 1 2 4 5 On February 22, 2021, the Bank of England provided the following information on the yield curve Maturity 3 RT 0.07% 0.21% 0.32% 0.43% 0.54% rreal -2.59% -2.55% -2.49% where Re are the spot rates, ie. the yield to maturity of a bond with T years to maturity and r is the expected one period real interest rate for period t. (a) (6 points) Calculate the implied forward curve, containing the future expected one period interest rates. (b) (4 points) Using the information above and the data provided, calculate the implied future inflation for year 3, 4 and 5. (c) (6 points) How do your answers in part (a) and (b) change if you assume a risk premium of 0.05% per annum, i.e. k, = 0%, ka = 0.05%, ..., ks = 0.2%. (d) (4 points) Based on your answers above, what are your predictions for UK monetary policy in the next five years