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%.”