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Basic Question 2 of 5
The minimum data required to calculate the implied forward rate for five years beginning two years from now would be ______.
B. the two-year and seven-year spot rates
C. spot rates at six-month intervals for the seven-year period
A. spot rates at six-month intervals for two years and the seven-year spot rate
B. the two-year and seven-year spot rates
C. spot rates at six-month intervals for the seven-year period
User Contributed Comments 3
| User | Comment |
|---|---|
| MadsI | The following must hold:(1+R2)^2 x (1+R5)^5 = (1+R7)^7 - otherwise you could arbitrage. You can calculate R5 if you know R2 and R7 - remember to adjust for semiannual payments. |
| mtcfa | Wouldn't you need to go out one year further. The answer to this question appears to totally conflict with the formula on how to compute a forward rate. |
| mtcfa | Disregard my prvious comment. The text gives a clear explanation. |
I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu
Learning Outcome Statements
define par and forward rates, and calculate par rates, forward rates from spot rates, spot rates from forward rates, and the price of a bond using forward rates
CFA® 2024 Level I Curriculum, Volume 4, Module 9.