Question

You note the following yield curve in The Wall Street Journal. According to the unbiased expectations...

You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? (Round your answer to 2 decimal places.)


Maturity Yield
  One day 2.80 %
  One year 6.30
  Two years 7.30
  Three years 9.80
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Answer #2

According to Unbiased expectation theory :-

one year forward rate = (1+i2)2 / (1+i1)1   -1

                 = (1+.073)2/(1+.063)1 - 1

                 = (1.073)2 /(1.063)1   -1

                  = 1.1513/ 1.063 - 1

                  = 1.08309 - 1 = 0.08309 = 8.309%

answered by: anonymous
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