The current real one-year spot interest rate is 1.25% and the current one-year inflation rate is 0.5%. The forecast for the one-year real spot interest rate next year is 1.02% while the expected one-year inflation rate next year is the same as of the current year.

a. What is the nominal two-year spot interest rate?

b. What would be the three-year spot interest rate if the forecast of the one-year interest rate for the third year is close to the second year forecast except for the additional liquidity premium of 0.25%