This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.Answer 1:
a. False. This is because the nominal interest rate is found using the formula (1 + 8%)/(1 + 2%) – 1. The method showed is an approximation method.
b. True. This is because the investors take long and short positions according to their expectations and that influences the forward rate.
c. False. This is because the next cash flow would be in nominal terms and it cannot be discounted using real discount rate. The real cash flows should be discounted using ...