I’m still waiting for my books to arrive, but when I calculate the implied forward rate for year 2 I get 2.8962%.

You’re correct: you have to compute the spot rates first (from the par rates), then compute the forward rates from the spot rates.

(Note: your calculation for year 1 forward rate is not correct, because you’re using the par rates instead of the spot rates. s_{2} = 1.9139%, so _{1}f_{1} = 1.019139^{2} / 1.015 − 1 = 2.3296%)

I got the same as you did. 2.3296% for Year 1 and 2.8962% for Year 2. The book shows 2.61% for Year 2, which I believe it’s a mistake. Let me know when you get your books.

I dont think you need to know the calculation? I think you just need to be able to look at the table and identify the appropriate positioning based on the numbers given.

So for 3 Year Maturity: I got 1.1046 from the spot zero curve and divided by 1.015 to get 1.0883, which i then cubic root it to get 1.0286. Is that what you got as well to get the 3 year bond 1 year from now? Thanks!

Hi everyone, could someone help me out with the following questions:

Question 1: I tried performing the same calculations for the bond maturing at Year 4 (ie. 5 year bond 1 year from now)

(1+0.015)*(1+f)^{4} = (1.027706)^{5}

f = 3.09%

This does not tie to the figure in the book which states 3.07%. Am I missing something?

Question 2: Could someone please explain to me what the paragraph below means? I can’t get it.

“Notice an important interpretation of the forward rate: Any bond maturing in n periods that trades at its implied forward rate in one year, when it is an n – 1 to remaining maturity bond, will have the same realized return as today’s 1-year (one-period) bond. If all bonds trade at their forward rates in one year, all bonds will have had the same realized return as today’s 1-year bond: 1.50%.”