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QUESTION 2 The table below shows some spot rates with different maturities: Year Spot rate 1 4.0% p.a. 2 12 13 4.4% p.a. For example,

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QUESTION 2 The table below shows some spot rates with different maturities: Year Spot rate 1 4.0% p.a. 2 12 13 4.4% p.a. For example, the 3-year spot rate is 4.4% p.a. In addition, as of today, the 1-year forward rate between year 1 and year 2 is 4.2% p.a. Assume both spot and forward rates are compounded annually. The 2-year spot rate is likely to be Choose the closest answer. O a. 4.4% O b.4.1% C. 4.3% O d. 4.2%

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