1. Assume that as of today, the annualized interest rate on a three-year security is 8 percent, while the annualized interest rate on a two-

Question

1. Assume that as of today, the annualized interest rate on a three-year security is 8 percent, while the annualized interest rate on a two-year security is 6 percent. Use only this information to estimate the one-year forward rate two years from now.

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Nem 1 day 2021-07-22T06:35:20+00:00 1 Answers 0 views 0

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    2021-07-22T06:36:40+00:00

    Answer:

    r1 = 12.11 %

    Step-by-step explanation:

    One-year forward rate two years from now = (1+0.08)^3 / ( 1+0.06)^2 – 1

    r1 = 1. 2597/1.1236 – 1

    r1 = 12.11 %

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