Suppose the following information (yields are quoted on abond-equivalent basis) is available:6-month bill rate...

Suppose the following information (yields are quoted on a bond-equivalent basis) is available:

6-month bill rate = 3.8%

1-year bill rate = 4.2%

What is the implied 6-month forward rate six months from now on a bond-equivalent basis?

Expert Solution

(1 + 6 month Rate) * (1 + 6 month forward rate six months from Now / 2) = (1 + 1 year bill rate)^2

(1 + 1.90%) * (1 + 6 month forward rate six months from Now/2) = (1 + 2.10%)^2

(1 + 6 month forward rate six months from Now/2) = 1.023

6 month forward rate six months from Now/2 = 0.023

6 month forward rate six months from Now = 4.60%

jeff jeffy answered 2 years ago

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