Hi, a bit confused here… Vol. 5 p.470 Reading 68 Given the following 6-month forward rates, compute the forward discount factor for each period. Period 1 2 3 4 5 6 Annual Forward Rate (BEY) 4.00% 4.40% 5.00% 5.60% 6.00% 6.40% My questions are: 1) Why “6-month forward rates”? The table shows 6 periods which is equivalent of 3 years. 2) The problem seems missing z1 data and the answer sheet does not explain it. Any advice?
- Should it state as 6-period annual forward rate instead of 6-month forward rates? It does not make sense to me… 2. Formula of Forward Discount Factor as below: PV of $1 in T periods = 1/(1+z1)(1+1f1)(1+1f2)…(1+1fT-1) (note: the numbers around f are subscripts, not sure how to type them here) z1 is considered as the spot rate for period 1. Since the problem does not tell z1, I conclude the forward discount factor is not calculable. Am I wrong???