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There are three zero coupon bonds with a face value of $10 million.One matures one year from now and is selling at $9,433,962.30.The second matures two years from now and is selling for $8,573,388.20.The third matures three years from now and is selling at
$7,117,802.50.
-What is the implied forward rate between time 1 and time 2?
A)6%
B)8%
C)10%
D)12%
E)14%

Question

Quizplus · Accepted Answer

The implied forward rate can be calculated using the formula: (1 + f) = (1 + y2)^2 / (1 + y1), where y1 and y2 are the yields for the first and second bonds. Calculate y1 and y2 using the bond prices and face value, then solve for f. The forward rate is approximately 10%.

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