Question

Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 4.1% r2 = 4.5% r3 = 5.2% r4 = 6.0% What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Answer 1

Answer:

Consider the following calculations

Explanation:

According to this general formula

f1,k = [(1+rk+1)k+1/((1+r1)]1/k -1

f1,1 = [(1+ 4.9%)1+1/((1+4.4%)]1/1 -1 = 5.40%

f1,2 =  [(1+ 5.6%)2+1/((1+4.4%)]1/2 -1 = 6.21%

f1,3 =  [(1+ 6.4%)3+1/((1+4.4%)]1/3 -1 =7.08%