Problem 1 (14 points): Assume the forward rates for the next 2 years are given by: r(0.5)=6%, r(1)=7%; r(1.5)=7.5% and r(2)=8%. Keep at least 6 decimal digits while doing calculations and reporting the answer.

a) (3 points) Find the 2-year spot rate.

b) (3 points) Find the price of an 8% coupon bond maturing in 2 years. Keep at least 4 decimal digits while doing calculations and reporting the answer.