$(20$ marks$).$ The current one$-$year and two$-$year spot rates are $4\mathrm{.}25\%$ and $4\%$ with

annual compounding, respectively. If someone told you that the one$-$year spot rate

in one year would be $3\%$ with annual compounding, would you believe it$?$ Why or

why not? How could you make risk$-$free money if he$/$she offers a borrowing$/$lending

one$-$year rate of $3\%$ in one year?