FIN325_Implied Forward Rate problemsKEY

These are the Implied Forward Rate problems you are responsible for

 

R1=4% and R2=4.5%    What is the implied 1-year forward rate for year 2?

2f1=(1.045^2)/(1.04) – 1 = 5.00%

 

 

R2=4.5% and R3=5.2%              What is the implied 1-year forward rate for year 3?

3f1=(1.052^3)/((1.045)^2) – 1 = 6.61%

 

 

R2=4.5% and R4=5.6%    What is the implied 2-year forward rate for year 3?

3f2=((1.056^4)/((1.045)^2))^(1/2) – 1 = 6.71%

 

 

R1=2.2% and R2=2.4%              What is the implied 1-year forward rate for year 2?

2f1=(1.024^2)/(1.022) – 1 = 2.6%

 

R2=2.4% and R3=2.8%              What is the implied 1-year forward rate for year 3?

3f1=(1.028^3)/((1.024)^2) – 1  = 3.60%
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