You note the following yield curve in The Wall Street Journal. According to the unbiased expectations hypothesis, what is the one-year forward rate for the period beginning one year from today, ₂f₁?

Question

Quizplus · Accepted Answer

According to the unbiased expectations hypothesis, the one-year forward rate beginning one year from today (denoted as ₂f₁) can be calculated as the geometric mean of the two one-year spot rates for periods ₁ and ₂, minus 1. Using the rates provided in the yield curve, we can calculate: [(1+0.085)(1+0.095)]^0.5 - 1 = 0.090 or 9.0% Therefore, the answer is C) 9.0%.

You Note the Following Yield Curve in the Wall Street