A forward rate prevailing from period three through to period four can be:
I. readily observed in the market place
II. extracted from spot interest rate with 3 and 4 years to maturity
III. extracted from 1 and 2 year spot interest rates
A) I only
B) II only
C) III only
D) I and III only

Question

Quizplus · Accepted Answer

The forward rate prevailing from period three through to period four can be extracted from spot interest rates with 3 and 4 years to maturity using the formula: F34= [(1+r4)4/(1+r3)3] - 1. It cannot be readily observed in the market place and cannot be extracted from 1 and 2 year spot interest rates.

A Forward Rate Prevailing from Period Three Through to Period