On March 11, 20XX, the existing or current (spot) one-year, two-year, three-year

Question

On March 11, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:

Using the unbiased expectations theory, calculate the one-year forward rates on zero-coupon Treasury bonds for years two, three, and four as of March 11, 20XX. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

On March 11, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:

Explanation / Answer

F2 = {[1+R2]^2/[1+R1]^1 } - 1

     = {[1+.0168]^2 /[1+.0116]^ } -1

     = {1.033882/1.0116} -1

    = 1.0220-1

     = .022 or 2.2%

b)F3 = {[1+R3]^3/[1+R2]^2 } - 1

    = {[1+.0192]^3 / [1+.0168]^2 } - 1

   = { 1.058713/1.033882} - 1

= 1.0240-1

= .0240 or 2.40%

c)

F4 = {[1+R4]^4/[1+R3]^3 } - 1

   ={[1+.0203]^4 /[1+.0192]^3 } -1

    ={1.0837062/1.058713]-1

    = 1.0236-1

    = .0236 or 2.36%

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