James McDonald and Veasna Lu were discussing different ways of valuing a Treasury security. During their discussion Lu made the following statements: Statement 1: It is inappropriate to discount the cash flows of a Treasury security by a single discount rate because that is implicitly assuming that the yield curve is flat. Therefore, each individual cash flow should be discounted by its corresponding spot rate. Statement 2: The spot rates used for different time periods that produce a value equal to the market price of a Treasury bond are called forward rates or future expected spot rates. Are the statements made by Lu regarding bond spot rates correct Statement 1 Statement 2 （）①A. Correct Correct②B. Incorrect Incorrect③C. Correct Incorrect
A. ①
B. ②
C. ③
