One,two and three year maturity,default-free,zero-coupon bonds have yields-to-maturity of 7%,8% and 9% respectively.What is the implied one-year forward rate,one year from today?

Question

Quizplus · Accepted Answer

The implied one-year forward rate is calculated as the expected yield on a one-year investment made one year from today. We can use the yields of the zero-coupon bonds to calculate this rate. 
Let F be the implied one-year forward rate. 
According to the formula for the yield on a zero-coupon bond, 
1 + 0.07 = 1/(1+F)  =>  F = 0.09 or 9%
Therefore, the implied one-year forward rate is 9.0%.

One,two and Three Year Maturity,default-Free,zero-Coupon Bonds Have Yields-To-Maturity of 7%,8