If the one-year spot interest rate is 6 percent and the two-year spot interest rate is 7 percent, calculate the one-year forward interest rate one year from today.
A)6.5 percent
B)7 percent
C)7.5 percent
D)8 percent

Question

Quizplus · Accepted Answer

The one-year forward rate one year from today can be calculated using the formula: (1 + two-year rate)^2 / (1 + one-year rate) - 1. Plugging in the values: (1.07)^2 / (1.06) - 1 = 0.08 or 8 percent.

If the One-Year Spot Interest Rate Is 6 Percent and the Two-Year