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An analyst is given the following effective annual rates: 3-year spot rate = 4% 5-year spot rate = 5% 4-year forward rate 3 years from today = 6% 3-year forward rate 7 years from today = 7% Find the 2-year forward rate 5 years from today?

An analyst is given the following effective annual rates: 3-year spot rate = 4% 5-year spot rate = 5% 4-year forward rate 3 years from today = 6% 3-year forward rate 7 years from today = 7% Find the 2-year forward rate 5 years from today?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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2. An analyst is given the following effective annual rates: 3-year spot rate = 4% 5-year spot rate = 5% 4-year forward rate 3 years from today = 6% 3-year forward rate 7 years from today = 7% Find the 2-year forward rate 5 years from today? (1 + y )ª®1 + ³ = (1 + y ₂)²1 + ²√³ (1 + 4%) *(1 + 6%) ª = (1 + 5%) ²1 + ³ ⇒ f = 5.48%
Transcribed Image Text:2. An analyst is given the following effective annual rates: 3-year spot rate = 4% 5-year spot rate = 5% 4-year forward rate 3 years from today = 6% 3-year forward rate 7 years from today = 7% Find the 2-year forward rate 5 years from today? (1 + y )ª®1 + ³ = (1 + y ₂)²1 + ²√³ (1 + 4%) *(1 + 6%) ª = (1 + 5%) ²1 + ³ ⇒ f = 5.48%
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