Implications of Yield Curve Construction

As part of a fixed income analysis, an analyst is constructing a yield curve based on observed market rates. The analyst gathers data from several bonds with different maturities, specifically focusing on zero-coupon bonds which have the advantage of providing a clearer view of the term structure of interest rates without the distortions of coupon payments.

Using the data collected, the analyst has compiled the following annual yield rates:

• 1-year zero-coupon bond: 2.0%
• 2-year zero-coupon bond: 2.5%
• 3-year zero-coupon bond: 3.0%
• 4-year zero-coupon bond: 3.8%

The analyst observes a steepening yield curve where longer maturities yield higher rates. To further analyze this, the analyst uses the Bootstrapping method to derive the implied forward rates for the next periods.

Which of the following statements accurately reflects the implications of this yield curve construction?