replicating cash flows

I have a spot interest rates of y_1 = 0.04, y_2 = 0.05, and y_3 = 0.06.



When I am discounting things that occur at the end of year two, the ASM manual divides by 1.05^2. Why wouldn't I divide by 1.04*1.05?



I am looking on page 1199 example 62A if you have the manual.



Thanks.

replicating cash flows