1. Suppose that the one-period rate is 4% and that the two-period rate is 6%. What sort of expectation for the one-period rate next period makes this situation an equilibrium?
2. Consider an asset paying 1 next period and 2 in two periods. Suppose that the one-period rate is 4% and that it will remain constant. Show that a price of 2.5 is not an equilibrium price for this asset.