Response to the following questions:
1. How does the taxability of interest affect the yield offered on a bond?
Suppose that the 1-year spot rate is 4.1% and the 2-year spot rate is 4.6%. What is the 1-year forward rate one year from now?
2. a. Comment on the following statement: "Forward rates are good predictors of future interest rates."
b. Why can forward rates be viewed as hed geable rates?