Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 4.1% r2 = 4.5% r3 = 5.2% r4 = 6.0% 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.)

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Business

Sonny Cunningham

7 August, 07:42

Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 4.1% r2 = 4.5% r3 = 5.2% r4 = 6.0% 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.)

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Answers (1)

Know the Answer?

Noelle Meadows · Answer 1

Consider the following calculations

Explanation:

According to this general formula

f1, k = [ (1+rk+1) k+1 / ((1+r1) ]1/k - 1

f1,1 = [ (1 + 4.9%) 1+1 / ((1+4.4%) ]1/1 - 1 = 5.40%

f1,2 = [ (1 + 5.6%) 2+1 / ((1+4.4%) ]1/2 - 1 = 6.21%

f1,3 = [ (1 + 6.4%) 3+1 / ((1+4.4%) ]1/3 - 1 = 7.08%