Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. following yield curve interest rate 1% 2%

following yield curve interest rate 1% 2% 3% And that the FRA (1 year, starting two year from now) is 4% Calculate...

Free

60.1K

Verified Solution

Question

Finance

  1. following yield curve

interest rate

1%

2%

3%

And that the FRA (1 year,starting two year from now) is 4%

  1. Calculate the implicit 1 year interest rate that we areexpecting for next year and next next year

Answer & Explanation Solved by verified expert
4.1 Ratings (805 Votes)

A)One year interest rate for next year :[1+i2]^2/[1+i1]^1      -1

                                =[1+.02]^2/[1+.01]^1    -1

                                =[1.02]^2/[1.01]^1        -1

                                 = 1.0404/1.01            - 1

                               = 1.0301-1

                              = .0301 or 3.01%

b)One year interest rate fir next next year = [1+y3]^3/[1+y2]^2     -1

                          =[1+.03]^3/[1+.02]^2     -1

                           =[1.03]^3/[1+.02]^2      -1

                           = 1.092727/1.0404    -1

                           = 1.0503-1

                          = .0503 or 5.03%
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

following yield curveinterest rate1%2%3%And that the FRA (1 year,starting two year from now) is 4%Calculate the implicit 1 year interest rate that we areexpecting for next year and next next year

Other questions asked by students