Homework Answers
Given,
1 year rate at beginning of year 1, f(0,1) = 6%
1 year rate at beginning of year 2, F(0,1,2) = 7%
1 year rate at beginning of year 3, F(0,2,3) = 10%
1 year rate at beginning of year 4, F(0,3,4) = 11%
to calculate, f(0,2) = ((1+f(0,1))*(1+F(0,1,2)))^(1/2) - 1 = (1.06*1.07)^0.5 - 1 = 6.5%
F(0,3) = (((1+f(0,2))^2)*(1+F(0,2,3)))^(1/3) - 1 = ((1.065^2)*1.1)^(1/3) - 1 = 7.65%
F(0,4) = (((1+f(0,3))^3)*(1+F(0,3,4)))^(1/4) - 1 = ((1.0765^3)*1.11)^(1/4) - 1 = 8.48%
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