Chapter 10, Problem 42PS

Summary Introduction

To determine:

The row of interest rates that represents spot rates and forward rates

Introduction:

The forward rate is the rate which is a short-term interest rate for the future period used for making the return of short-term bonds same as equal to the total expected return of long-term bonds with a condition to holding them till maturity.

The spot rates are the rates which are calculated by taking averages of the forward rates geometrically.