Question

Asked Aug 12, 2019

The Analysis and Valuation of Bonds, Investment Analysis and Portfolio Management

1. The following table shows spot rates on US Treasury securities as of January 1, 2019:

Term to Maturity Calculated

Spot Rates

1 Year 3.50%

2 Years 4.50%

3 Years 5.00%

4 Years 5.50%

5 Years 6.00%

10 Years 6.60%

Based on the data on the table

a) Calculate the one-year implied forward rate, four years from now.

b) Calculate the 2-year implied forward rate, two years from now.

Step 1

a.

Calculate the one-year implied forward rate as follows:

Step 2

b.

Calculate the two-year implied f...

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