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Basic Question 2 of 13

Given the spot rates r(1) = 5%, r(2) = 5.5%, and r(3) = 6%, calculate f(2, 1).

A. 6.5%
B. 6.8%
C. 7%
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User Contributed Comments 2

User Comment
akirchner1 f(2,1) This is like saying 'what is is the one year rate beginning in two years.' A shortcut method is (6 x 3) - (5.5 x 2) = 7.
UcheSam @akirchner1, it does not work in all scenarios. Try out f(1,2).
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

describe relationships among spot rates, forward rates, yield to maturity, expected and realized returns on bonds, and the shape of the yield curve;

describe how zero-coupon rates (spot rates) may be obtained from the par curve by bootstrapping;

CFA® 2025 Level II Curriculum, Volume 4, Module 26.