Spot Rate/ Forward rate tricky Qns

  1. Suppose the 3-yr spot rate is 12.1% and the 2-yr spot rate is 11.3%. Which of the following statements concerning forward and spot rates is TRUE? The 1-yr: a) forward rate 2-yrs from today is 13.7% b)forward rate 2-yrs from today is 13.2% c)forward rate 1 yr from today is 13.7% d)spot rate is 13.7% 2.Suppose the 6-month spot rate is equal to 7% and the 2-yr spot rate is 6%.Which of the following is the best answear concerning the level of the one-and half-year forward rate starting 6 months from now? The forward rate has to : a)be more than 6% b)be more than 7% c)lie btn 6% and 7% d)be less than 6% CN
  1. A 2. im guessing those rates are quoted as BEY. in that case the answer is B?

a b … Actually it will be D…

A, D

wats the rationale behind answear A for Qn 1? can some one elaborate.? For 2 i got D also, but not sure if that is correct.


I agree A,D for the second question is the 1.5yr foward rate = ((1.06^4 / 1.07) ^(1/3))-1 = 5.67%??

for such questions use the timeline, they make it easy to understand For the first it is (1.121)^3/(1.113)^2