If you have two options to investment your $10,000: First one is an one-year Certificate of Deposit (CD) with simple annual interest rate of 1%; The second one is a two-year Certificate of Deposit (CD) with simple annual interest rate of 2% for year 1 and year 2. 

There are two questions: 

a. What is the implied one-year forward one-year CD rate? 

b. Which investment between the two do you prefer? Why?

Answer rating: 100% (QA)

a To calculate the implied oneyear forward oneyear CD rate we can use the concept of the forward rat... View the full answer