Consider the following spot rates.Maturity (years)Zero rate (%)132434.6...

Consider the following spot rates.

Maturity (years)	Zero rate (%)
1	3
2	4
3	4.6
4	5

What is the one-year forward rate for year two?

Expert Solution

One year forward rate for year two: 2F1

2F1 = (1 + r3)^3/(1 + r2)^2 - 1

r3 = 4.6% = 0.046

r2 = 4% = 0.04

2F1 = (1 + 0.046)^3/(1 + 0.04)^2 - 1

2F1 = 1.144445336/1.0816 - 1

2F1 = 0.05810404586

2F1 = 5.810404586%

jeff jeffy answered 2 years ago

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