Question 9 4 pts Consider the following spot rate curve for the next 2 questions

Question

Question 9 4 pts Consider the following spot rate curve for the next 2 questions: 6-month spot rate: 7%. 12-month spot rate: 9%. 18-month spot rate: 13%. What is the forward rate for a one-year zero coupon bond issued 6 months from today? Equivalently, the question asks for f21, where 1 time period consists of 6 months. All rates are compounded semi-annually Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321. Hint: Locking in the 18-month rate today should produce the same return as locking in the 6-month rate first, and then investing the proceeds in a one-year zero coupon bond issued 6 months from today.

Explanation / Answer

(1+f21/2)^2*(1+R6/2)=(1+R18/2)^3

=>f21=2*((1.065^3/1.035)^(1/2)-1)

=>f21=16.065%

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