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

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

Problem 1PS

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Question

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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