Revision as of 00:21, 5 December 2023 by Admin (Created page with "You are given the following spot rates: {| class="table" ! Maturity (Year) !! Spot Rate (%) |- | 1 || 2.9% |- | 2 || 3.2% |- | 3 || 3.6% |- | 4 || 4.2% |} Compute the forward rate between years 1 and 3. <ul class="mw-excansopts"> <li>3.15%</li> <li>3.25%</li> <li>3.5%</li> <li>3.75%</li> <li>3.95%</li> </ul> '''References''' {{cite web |url=https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf |last1=Lo |first1=Andrew W. |last2 = Wang | first2 = Jiang |websit...")
Dec 05'23
Exercise
You are given the following spot rates:
| Maturity (Year) | Spot Rate (%) |
|---|---|
| 1 | 2.9% |
| 2 | 3.2% |
| 3 | 3.6% |
| 4 | 4.2% |
Compute the forward rate between years 1 and 3.
- 3.15%
- 3.25%
- 3.5%
- 3.75%
- 3.95%
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.
Dec 05'23
Solution: E
[[math]]\left(1+r_3\right)^3=\left(1+r_1\right)^1\left(1+f_{1,3}\right)^2 \rightarrow f_{1,3}=3.95 \%[[/math]]
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.