Question 32 1 pts The one year spot interest rate is 1.75% and the one year...

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business finance

Answer 1

Answer #1

Forward rate = [(1 + r2)^n) / (1 + r1)^n] - 1

0.025 = [(1 + r2)^2) / (1 + 0.0175)^1] - 1

1.025 = [(1 + r)^2) / (1 + 0.0175)^1]

1.042938 = (1 + r)^2

1.0212 = 1+ r

r = 00212 or 2.12%

Two year rate = 2.12%

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Answer 2

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