Forecasting Interest Rates On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows: _{Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year four as of May 23, 20XX?
A.5.925%
B.6.45%
C.7.05%
D. 10.32%}

Question

Forecasting Interest Rates On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:

<sub>
Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year four as of May 23, 20XX?
A.5.925%
B.6.45%
C.7.05%
D. 10.32%

Quizplus · Accepted Answer

S1U1B14S1U1B0fS1U1B11 S1U1B0= [(1 + S1U1B11S1U1B0RS1U1B14S1U1B0)S1U1P14S1S1P0/(1 + S1U1B11S1U1B0RS1U1B13S1U1B0)S1U1P13S1S1P0] - 1 = [(1 + .0645)S1U1P14S1S1P0/(1 + .0625)S1U1P13S1S1P0] - 1 = 7.05%

Forecasting Interest Rates on May 23, 20XX, the Existing or Current