Forward rates you have the following assumpitons and spot rates - solve for the implied forward...

Question

Question

business finance

Answer 1

Answer #1

Answer:

One-year spot rate at t= 0, S1 = 0.680%

Two-year spot rate at t= 0, S2 = 0.860%

Let the implied forward 1 year rate be f(1,1), then

(1 + S2)^2 = (1 + S1) * (1 + f(1,1))

=> f(1,1) = ((1 + 0.860%)^2 / (1 + 0.680%)) - 1 = 1.040%

Implied forward 1 year rate is 1.040% in one year.

Answer 2

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