Question
In: Finance
Forward Rate. a. Assume that as of today, the annualized two-year interest rate is 0.1 ,...
Forward Rate. a. Assume that as of today, the annualized two-year interest rate is 0.1 , while the one-year interest rate is 0.07. Assume that the liquidity premium on a two-year security is 0.003. Use this information to re-estimate the one-year forward rate. Enter the answer in decimal form using 4 decimals (e.g. 0.1234)
Solutions
Expert Solution
One Year forward rate one year =(1+2 year rate)^2/(1+1 year
rate)-1-Liquidity Premium/(1+One year rate)
=(1+0.1)^2/(1+0.07)-1-0.003/(1+0.07)=0.1280
jeff jeffy answered 2 years agoRelated Solutions
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