1. a. A young couple has made a deposit of the first month's rent (equal to $1000) on a 6-month apartment lease. The deposit is refundable at the end of six months 1fthey stay until the end of the lease. The next day they find a different apartment that they like just as we l. but its monthly rent s only $900. And they would again have to put a deposit of $900 refundable at the end of 6 months. They plan to be in the apartment only6 months. Should they stay or switch to the new apartment? Assume an (admittedly unrealistic!) interest rate of 12% per month compounded monthly.

b. Suppose the spot rates for 1 and 2 years are S₁= 6.3% and S₂=6.9% with annual compounding. Recall that in this course, interest rates are always quoted on an annual basis unless otherwise specified. What is the discount rate d(0,2)? Submit your answer rounded to three decimal places. For

c. Suppose the spot rates for 1 and 2 years are S₁= 6.3% and S₂=6.9% with annual compounding. Recall that in this course. interest rates are always quoted on an annual basis unless otherwise specified. What is the forward rate, assuming annual compounding? Submit your answer as a percentage rounded to one decimal place. [hint: Relation between spot and forward rates]