r 1 = 6.5% r 2 = 7.0% r 3 = 7.7% r 4 = 8.5% What are the following forward rates
ID: 2761929 • Letter: R
Question
r1 = 6.5% r2 = 7.0% r3 = 7.7% r4 = 8.5%
What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Consider the following spot interest rates for maturities of one, two, three, and four years.r1 = 6.5% r2 = 7.0% r3 = 7.7% r4 = 8.5%
What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
F1,1 = ((1+R2)^2)/1+R1)^1/1 -1= (1+7%)^2/(1+6.5%)^1/1-1 = 7.5%
f1,2 = (1+R3)^3)/1+R1)^1/2 -1 = (1+7.7%)^3/1+6.5%)^1/1-1 = 8.31%
F1,3 = (1+R4)^4)/1+R1)^1/3 -1 =(18.5%)^4/1+6.5%)^1/3 = 9.08%