1. A one-year STRIPS sells at an interest rate of 3.54 percent and a two-year STRIPS sells at an interest rate of 3.49 percent. What is the implied one year forward rate? Assume the rates are effective annual rates.
3.44 percent
3.50 percent
3.54 percent
3.57 percent
3.60 percent
2. The following premiums apply to a 8-month bond: interest rate risk premium = 0.32 percent; liquidity premium = 0.44 percent; default premium = 1.23 percent; inflation premium = 3.12 percent; real rate = 3.20 percent. What is the expected nominal interest rate on a 8-month risky security given these values?
5.85 percent
6.45 percent
7.55 percent
8.31 percent
9.30 percent