r 1 = 4.7% r 2 = 5.2% r 3 = 5.9% r 4 = 6.7% What are the following forward rates

Question

           r1 = 4.7%    r2 = 5.2%     r3 = 5.9%     r4 = 6.7%

What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Please help find f1,2

Hint

Use the equation (1 + r1)(1 + f1, k)k = (1 + rk+1)k+1 to solve for f1, k.

Consider the following spot interest rates for maturities of one, two, three, and four years.

           r1 = 4.7%    r2 = 5.2%     r3 = 5.9%     r4 = 6.7%

What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Answer:

f1,2=[(1+r3)3/(1+r1)]1/2-1

=[(1+0.059)3/(1+0.047)]1/2-1

=[1.134334650]1/2-1

=6.51%

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