How Can One Invest Today at the 2-Year Forward Rate

question 4

Multiple Choice

How can one invest today at the 2-year forward rate of interest?
I. By buying a 2-year bond and selling a 1-year bond with the same coupon
II. By buying a 1-year bond and selling a 2-year bond with the same coupon
III. By buying a 1-year bond and then after a year reinvesting in a further 1-year bond

• A) I only
• B) II only
• C) III only
• D) II and III only

---

Definitions:

Cross Section

A diagram or slice that shows the internal structure of something, often used in geological contexts to illustrate the arrangement of rock layers.

Calderas

Large, circular depressions formed when a volcano collapses into a void left after the eruption and evacuation of its magma chamber.

Folds

Folds are bends in rock layers or strata, resulting from compressional forces and pressure, integral to the study of structural geology and mountain building.

Iron-Ore Deposits

Concentrations of iron minerals within the Earth that can be mined and processed to extract iron metal.