1. A one-year Treasury bill has a yield of 6%. A bond will pay $70 at the end of year 1 and $1,070 at the end of year 2. If its market value is $1,036.50, the two-year spot rate is:
(a) 6%. (b) 9%. (c) 7%. (d) 5%. (e) 8%.
2. If there is a one-year spot rate of 6% and two-year spot rate of 8%, the forward rate from year 1 to 2 is:
(a) 9.06%. (b) 9.72%. (c) 8.12%. (d) 7.06%. (e) 10.04%.