1. 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%.

2. The spot rate for year 1 is 7.5% and the forward rate for year one to two is 8%. The

two-year discount factor is:

(a) 0.845. (b) 0.861. (c) 0.852. (d) 0.888. (e) 0.874.