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Consider a binomial model of the yield curve over 3 years where y0,1 = 3%. The...

Consider a binomial model of the yield curve over 3 years where y0,1 = 3%. The probability of an up movement in 1-period forward rates for year t = 2, 3 is 0.6 and 0.7, and the 1-period forward rates can go up by a factor of u = 1.5 or down by a factor of d = 0.8. Calculate the zero-coupon bond yield curve and the implied 1-period forward rates embedded in this yield curve.

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