Consider the following spot interest rates for maturities ofone, two, three, and four years.r1...

Consider the following spot interest rates for maturities of one, two, three, and four years.

r₁ = 5.6%

r₂ = 6.2%

r₃ = 6.9%

r₄ = 7.7%

What are the following forward rates, wheref_k,₁ refers to a forward rate beginning in k years and extending for 1 year?

f2,1 ______%

f3,1 _______%

Expert Solution

f2,1 ={ (1 + r3)^3 / (1 + r2)^2 } - 1

= { (1 + 0.069)^3 / (1 + 0.062)^2 } - 1

= 8.31% Answer

f3,1 = { (1+r4)^4 / (1+ r3)^3 } - 1

= { (1+0.077)^4 / (1 + 0.069)^3 } - 1

= 10.14% Answer

jeff jeffy answered 2 years ago

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