A forward rate prevailing from period three through to period four can be:
A) readily observed in the market place.
B) extracted from high coupon bonds.
C) extracted from spot rates with 2 and 3 year maturities.
D) extracted from spot rates with 3 and 4 years to maturity.

Question

Quizplus · Accepted Answer

Forward rates, especially those not immediately observable in the market, can be calculated using spot rates for the periods leading up to and including the period in question. In this case, to find the forward rate from period three to four, you would use the spot rates for three and four years to maturity.

A Forward Rate Prevailing from Period Three Through to Period