Question

If the two- year forward rate one year from now is 2%. What does that indicate...

If the two- year forward rate one year from now is 2%. What does that indicate

2% is the annual rate that can be locked in today for holding investment for two years where the investment starts one year from today

2% is the annual rate that can be locked in one year from today for holding investment for two years

2% is the annual rate that can be locked in today for holding investment for one year which starts  two years from today

none of the answers are correct
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Answer #1

Answer- option b

If the two- year forward rate one year from now is 2% means

2% is the annual rate that can be locked in one year from today for holding an investment for two years

Reason- In the phrase "the two- year forward rate one year from now", we have "1 year from now". So, the investment  will start after 1 year from today, option C is incorrect.

Also, two- year forward rate means future rate. So option A is incorrect.

Only So option B is correct.

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