If the one-year spot interest rate is 8% and two-year spot interest rate is 9%, calculate the one-year forward interest rate one year from today (approximately):
A) 10%
B) 12%
C) 14%
D) None of the above

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: (1.09)^2 / (1.08) - 1 ≈ 0.10 or 10%.

If the One-Year Spot Interest Rate Is 8% and Two-Year