cfastaf

cfastaf

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  • Avatar of cfastafcfastaf
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      This is the full question:

      (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)

      Avatar of cfastafcfastaf
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        not a troll man i see where i went wrong, i didn’t do it to the power of 0.25 but rather 4. thanks much

        Avatar of cfastafcfastaf
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          Yea its just a different question but would use the same concept to get to the answer….I just thought i send you a full version of a question i found online. please note the 6, 2 and 8 after the bracket in the equation is to the power of 6, 2 and 8

          Avatar of cfastafcfastaf
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            any input on this one Min?

            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

            Avatar of cfastafcfastaf
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              Maybe this is easier to see, how do they get to that answer, this is all that is given

              (1+0.0175)6 x (1+IFR6,2)2 = (1+0.02)8

              IFR6,2 = 0.0275

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