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Computing Implied Forward Rates
Can anyone please help me get to the answer.
Question-(1+0.02062/2)To the power of 4*(1+3f2/2)To the power of 6=(1+0.02243/2)To the power of 10
Answer= 3f2=0.02364
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Answers
(1+0.0175)6 x (1+IFR6,2)2 = (1+0.02)8
IFR6,2 = 0.0275
(1+zA)A x (1+IFRA,B-A)B-A – (1+zB)B
Suppose that the yields-to-maturity on a 3-year and 4-year zero coupon bonds are 3.5% and 4% on a semi-annual basis. The “3y1y” implies that the forward rate could be calculated as follows:
A = 6 periods
B = 8 periods
B-A = 2 periods
z6 = 0.035/2 = 0.0175
z8 = 0.04/2 = 0.02
(1+0.0175)6 x (1+IFR6,2)2 = (1+0.02)8
IFR6,2 = 0.0275
The “3y1y” implies the forward rate or forward yield is 5.50% (0.0275% x 2)
its mainly here I'm getting lost with the algebra:
(1+0.0175)6 x (1+IFR6,2)2 = (1+0.02)8
IFR6,2 = 0.0275