Question: Approximations are okay meaning it's okay to use arithmetic compounding (e.g., a 2-period rate = sum of two successive rates) instead of geometric compounding (which

Approximations are okay meaning it's okay to use arithmetic compounding (e.g.,

Approximations are okay meaning it's okay to use arithmetic compounding (e.g., a 2-period rate = sum of two successive rates) instead of geometric compounding (which says that a 1+ a 2-period rate equals (1+first rate) times (1+second rate)). That way, you don't even need a calculator to answer the question.

Q5 If the one-year forward rate starting one year from now is 3% and the two-year spot rate is 2%, what is the current one-year spot rate? (Approxi- mations are ok.)

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