Question

You are in the process of developing forecasts of short-term interest rates. In order to determine a bond trading strategy, you want to determine the market’s short-term (one-year) interest forecasts for different future periods. You have obtained the following data on traded Government of Canada zero coupon bonds of different maturities. Determine the implied one-year forward rates.
Maturity .... Observed YTM%
1 year ...... 3%
2 years ..... 5%
3 years ...... 7%
4 years ...... 6%
5 years ...... 5%

1-year forward rate expected in Implied 1-year forward rate %
1 year
2 years
3 years
4 years
5 years



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  • CreatedFebruary 25, 2015
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