Forward Rate. Assume that as of today, the annualized interest rate on a three-year security is...

Forward Rate. Assume that as of today, the annualized interest rate on a three-year security is 0.12, while the annualized interest rate on a two-year security is 0.03. Use only this information to estimate the one-year forward rate two years from now. Enter the answer in decimal form using 4 decimals (e.g. 0.1234)

Expert Solution

one year forward rate

= [(1+R13)^3/(1+R12)^2]-1

= {(1+0.12)^3/(1+0.03)^2 } - 1

= 32.43%

= 0.3243

jeff jeffy answered 2 years ago

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