1. A one year Treasure bill has a yield of 5%. A bond will pay $40 at the end of year one and $1,040 at the end of year 2. If its market value is $946.50, the two-year spot rate is:
(a) 9%. (b) 5%. (c) 7%. (d) 6%. (e) 8%.
2. A one-year Treasury bill has a yield of 6%. A bond will pay $70 at the end of year 1 and $1,070 at the end of year 2. If its market value is $1,036.50, the two-year spot rate is:
(a) 6%. (b) 9%. (c) 7%. (d) 5%. (e) 8%.