Question

Your boss in the table. wants you to forecast the interest rate (per annum) that will prevail for two years starting one year from now. The spot interest rates starting today(time 0) are given Maturity (years from today) Spot Yield 3.0% 3.2% 3 4% 3 6% 3.9% 4.1% A, 3.6% OB, 3.8% C. 34% OD. 3.3% E. 3.5% What’s CORRECT answer for these two????? Don’t answer if you don’t know
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Answer #1

interest rate for two year starting in a year = (1.034^3/1.03)^1/2 -1  

interest rate for two year starting in a year = 3.6%

steeper than since the interest rates are rising continuously

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