1. A one year Treasury bill offers a 8% yield to maturity. A two year Treasury bill offers a 4% yield to maturity. What is the expected 2 year forward rate if the expectation hypothesis holds?
2. Suppose two new companies are identical in all ways except that one uses an accelerated depreciation method and the other uses the straight-lined method. Initially, which company will have the higher profits? Which will have the higher cash flows? Explain your answers.