In: Finance
1. The following are the spot interest rates for 1- and 2-year fixed income securities.
Spot 1 Year Spot 2 Year Forward 1Year (1 year maturity)
Treasury 3.0% 4.75% x
BBB Corporate Debt 7.5% 9.15% y
Solution:
Spot 1 Year Spot 2 Year Forward 1 Year (1-year maturity)
Treasury 3.0% 4.75% x
BBB Corporate Debt 7.5% 9.15% y
The formula to calculate the forward rate is
For treasury
For BBB corporate debt