1 answer

Please solve and show work fully for a rating. Thank you. Suppose that today's annual market...

Question:

Suppose that todays annual market interest rates are 2.5% for a 2-year deposit/loan, 3.5% for a 3-year deposit/loan, and 4.5

Please solve and show work fully for a rating. Thank you.

Suppose that today's annual market interest rates are 2.5% for a 2-year deposit/loan, 3.5% for a 3-year deposit/loan, and 4.5% for a 4-year deposit/loan. What is the forward interest rate for a 2-year deposit in 2-year's time. (Use six decimals for your computations) 3.50000% 2.00000% 6.03921% 7.06127% 6.5390%

Answers

1. Forward interest rate on 2 year loan, 2 year ahead

=> {(1.045)^4 / (1.025)^2} (0.5) -1

=> 6.5390% (Option E is correct)

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