Question 21: Take two spot-interest curves. One is much steeper than the other as shown in the table below: Year 1 Year 2 Curve 1 1% 2% Curve 2 1% 4% Explain why forward interest (one year within one year) rates will be much lower with curve 1 than with curve 2. Also explain why 100 euros you receive on year 2 is worth less today according to curve 2 than according to curve 1.

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Chapter2: Using Financial Statements And Budgets
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Question 21: Take two spot-interest curves. One is much steeper than the other as shown in the
table below:
Year 1
Year 2
Curve 1
1%
2%
Curve 2
1%
4%
Explain why forward interest (one year within one year) rates will be much lower with curve 1 than
with curve 2. Also explain why 100 euros you receive on year 2 is worth less today according to
curve 2 than according to curve 1.
Transcribed Image Text:Question 21: Take two spot-interest curves. One is much steeper than the other as shown in the table below: Year 1 Year 2 Curve 1 1% 2% Curve 2 1% 4% Explain why forward interest (one year within one year) rates will be much lower with curve 1 than with curve 2. Also explain why 100 euros you receive on year 2 is worth less today according to curve 2 than according to curve 1.
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