Revision as of 10:21, 22 November 2023 by Admin (Created page with "Bill is looking at yield maturity rates for zero coupon bonds. They are currently quoted at 14% for one-year maturity, 16.5% for two-year maturity, and 11% for 3-year maturity. Let i be the one-year forward rate for year two implied by current yields of these bonds. Calculate i. <ul class="mw-excansopts"><li>.165</li><li>.137</li><li>.166</li><li>.0077</li><li>.191</li></ul> {{cite web |url=https://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1008&context=...")
ABy Admin
Nov 22'23
Exercise
Bill is looking at yield maturity rates for zero coupon bonds. They are currently quoted at 14% for one-year maturity, 16.5% for two-year maturity, and 11% for 3-year maturity. Let i be the one-year forward rate for year two implied by current yields of these bonds.
Calculate i.
- .165
- .137
- .166
- .0077
- .191
Hardiek, Aaron (June 2010). "Study Questions for Actuarial Exam 2/FM". digitalcommons.calpoly.edu. Retrieved November 20, 2023.
ABy Admin
Nov 22'23
Solution: E
The expected value for the bond to yield 2 years from now is 16.5%. Thus, the 2 year forward must equal (1.165)2. Thus the one year forward rate for year two is j, where:
[[math]]
(1.14)(1+j)=(1.165)^2 \implies j= .191
[[/math]]
Hardiek, Aaron (June 2010). "Study Questions for Actuarial Exam 2/FM". digitalcommons.calpoly.edu. Retrieved November 20, 2023.