Suppose the current six-year spot rate is 8 percent and the current five-year spot rate is 7 percent. What is the one year forward rate in five years?
A) 12.62 percent
B) 11.58 percent
C) 13.14 percent
D) 14.65 percent
E) 15.14 percent

Question

Quizplus · Accepted Answer

To calculate the 1-year forward rate in 5 years, we can use the formula:
(1 + Forward rate)^5 = (1 + 6 year spot rate)^6 / (1 + 5 year spot rate)^5

Plugging in the numbers we get:
(1 + Forward rate)^5 = (1 + 0.08)^6 / (1 + 0.07)^5
(1 + Forward rate)^5 = 1.5933
1 + Forward rate = 1.1314
Forward rate = 0.1314 or 13.14%

Therefore, the answer is C.

Suppose the Current Six-Year Spot Rate Is 8 Percent and the Current