Suppose the current six-year rate is 9 percent and the current five-year rate is 7 percent. What is the one year forward rate for five years?
A) 19.57 percent
B) 18.62 percent
C) 15.80 percent
D) 14.65 percent
E) 12.67 percent

Question

Quizplus · Accepted Answer

The forward rate is the rate that is expected to prevail in the future for a given period of time. In this case, the one year forward rate for five years is the rate that is expected to prevail five years from now for a one-year period.To calculate the one year forward rate for five years, we can use the following formula:```F(1,5) = (1 + r(5)) / (1 + r(6)) - 1```where:* F(1,5) is the one year forward rate for five years* r(5) is the current five-year rate* r(6) is the current six-year ratePlugging in the given values, we get:```F(1,5) = (1 + 0.07) / (1 + 0.09) - 1``````F(1,5) = 0.1862```Therefore, the one year forward rate for five years is 18.62%.

Suppose the Current Six-Year Rate Is 9 Percent and the Current