Yr Fwd Rate %
oy1y 1.9
1y1y 2.25
2y1y 3.5
3y1y 4.41
The 3 year implied spot rate is?
a) 2.55
b) 3.18
c) 4.41
Can someone please explain step by step how to get this?
Take a look at the articles I wrote on this:
- Calculating forward rates from spot rates: http://financialexamhelp123.com/calculating-forward-rates-from-spot-rates/
- Calculating spot rates from forward rates: http://financialexamhelp123.com/calculating-spot-rates-from-forward-rates/
The simple approximation is:
(1.9% + 2.25% + 3.5%) / 3 = 2.55%
Did I my knowledge, got 2.96
Was the answer A?
(1 + IFR)^3 = (1 + 0F1)(1 + 1F1)(1 + 2F1)
(1 + IFR)^3 = (1.019)(1.0225)(1.035)
(1 + IFR) = (1.078394963)^(1/3)
(1 + IFR) = 1.02547
IFR = 2.55%
or
(1.9 + 2.25 + 3.5)/3 = 2.55