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: ₁R₁ = 4.55 percent,
₁R₂ = 4.75 percent,
₁R₃ = 5.25 percent,
₁R₄ = 5.95 percent
Using the unbiased expectations theory,calculate the one-year forward rates on zero-coupon Treasury bonds for years two,three,and four as of May 23,20XX.

Question

Quizplus · Accepted Answer

₂f₁ = [(1 + ₁R₂)²/(1 + ₁R₁)] − 1 = [(1 + 0.0475)²/(1 + 0.0455)] − 1 = 4.95% ₃f₁ = [(1 + ₁R₃)³/(1 + ₁R₂)²] − 1 = [(1 + 0.0525)³/(1 + 0.0475)²] − 1 = 6.26% ₄f₁ = [(1 + ₁R₄)⁴/(1 + ₁R₃)³] − 1 = [(1 + 0.0595)⁴/(1 + 0.0525)³] − 1 = 8.08%.

On May 23,20XX,the Existing or Current (Spot)one-Year,two-Year,three-Year,and Four-Year Zero-Coupon Treasury